US dollar holds losses as Fed minutes signal slower rate hikes
THE US dollar held onto losses on Thursday (Nov 24), after the minutes from the Federal Reserve’s November meeting supported the view that the central bank would downshift and raise rates in smaller steps from its December meeting.
The eagerly awaited readout of the Nov 1-2 meeting showed officials were largely satisfied they could now move in smaller steps, with a 50-basis-point rate rise likely next month, after four consecutive 75 basis point increases.
Niels Christensen, chief analyst at Nordea, noting that the Fed will still feel it needs to do more to bring inflation down, said: “The Fed will be happy to move rates by 50 basis points in December and 25 basis points from the first meeting next year.
“As long as the Fed see a stronger labour market, it won’t have a big concern about tightening.” said.
The dollar index, which measures the greenback against six major peers, was little changed at 105.93, after sliding 1.1 per cent on Wednesday.
The Fed has taken interest rates to levels not seen since 2008, but slightly cooler-than-expected US consumer price data has stoked expectations of a more moderate pace of hikes.
Those hopes have sent the dollar index sliding 5.1 per cent in November, putting it on track for its worst monthly performance in 12 years.
“There are not that many dollar buyers around these days, after the correction higher in euro-dollar in the first half of November,” Nordea’s Christensen added.
The euro held onto gains after the account of the European Central Bank’s October meeting showed policymakers feared that inflation may be getting entrenched, justifying their outlook for further rate hikes.
The euro was last up 0.1 per cent at US$1.0408, while sterling was trading at US$1.21225, up 0.6 per cent on the day. The pound rallied 1.4 per cent on Wednesday, after preliminary British economic activity data beat expectations, although it still showed that a contraction was under way.
The euro was little changed against the Swedish krone after Sweden’s Riksbank raised rates by 75 basis points, in line with expectations in a Reuters poll.
In China, rising coronavirus cases have led cities nationwide to impose more curbs, increasing investor worries about the economy and putting a lid on risk appetite. China reported a record number of infections on Thursday.
The yuan firmed after Chinese state media quoted the Cabinet as saying that Beijing will use timely cuts in banks’ reserve requirement ratio (RRR), alongside other monetary policy tools, to keep liquidity reasonably ample.
The Japanese yen was one of the strongest gainers among major currencies against the dollar, climbing 0.6 per cent to 138.77.
The Australian dollar rose 0.2 per cent to US$0.6747, while the kiwi was 0.1 per cent higher at US$0.6249.
US markets were closed on Thursday for Thanksgiving, and liquidity will likely be thinner than usual. REUTERS
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