the us dollar is on the verge of its first “death cross” in twoandahalf years as a rally that peaked in september with the buck at its highest level in more than two decades continues to unwind in markets parlance a death cross occurs when the 50day moving average of a given asset or currency pair moves below the 200day moving average it’s considered by technical analysts to be a sign that a given asset or currency could be headed even lower although historically this isn’t always the case the ice us dollar index dxy  a gauge of the buck’s strength against a basket of rivals sported a 50day moving average of 10624 early tuesday according to factset data that’s within a few pips of the 200day moving average which stood at 10613 the last time the dollar index saw this pattern emerge was in early july 2020 according to factset data the index was trading modestly higher at 10330 on tuesday after touching its lowest level since june a day earlier see the us dollar surrendered its status as the world’s premier safe haven in q4 here’s how many factors have contributed to the dollar’s weakness in recent months but chief among them has been the improving outlook for the euro expectations for a more hawkish european central bank have spurred expectations that the interestrate differential between the us and europe could continue to narrow which has helped to bolster the shared currency falling energy prices have also helped curb inflation helping to improve the euro zone’s terms of trade another important influence on currency valuations interestrate spreads have historically had a huge impact on exchange rates since higher interest rates in a given country typically make its currency more attractive to foreign investors in 2022 the dollar benefited immensely as the fed led the developed world in the pace of its interestrate hikes furthermore investors around the world turned to the buck as a port in the storm as tumult gripped international stock and bond markets adding an extra boost to the greenback’s historic rally according to steve englander global head of g10 currency strategy at standard chartered who analyzed how these factors impacted exchange rates in a series of research notes but traders’ expectations have shifted markedly in the months since the dollar’s peak slowing inflation in both europe and the us has bolstered the view that the badly beaten down euro which reached parity with the dollar last year for the first time since shortly after the shared currency’s inception is poised for a comeback george saravelos global cohead of currency research at deutsche bank shared a breakdown of why traders believe the euro could continue to rally against the buck in a tuesday research note “the inflation gap between europe and the us suggests an even further narrowing in rate differentials this year…more broadly the relative cycle favors a fed pivot before the ecb” saravelos said to be sure there are others who believe the recent rally in the euro is now overdone based on economic fundamentals robin brooks the chief economist at iif and former chief currency strategist at goldman sachs said in a tuesday tweet that the euro’s rally suggests the euro zone’s economy is back to “business as usual” which simply isn’t the case this misperception in brooks’ view has led to a “big mispricing” in the shared currency looking ahead the next nearterm focus for dollar traders should be thursday’s consumerprice index report currency strategists said any indication that inflationary pressures have continued to ease could harden investors’ expectations that the federal reserve will start cutting interest rates later this year which has been a major factor driving the dollar lower “certainly the market does not buy into the fed’s narrative of the funds rate being taken to 500 and being kept there for a long time” said chris turner global head of markets at ing in a tuesday note