US dollar slides on expectations of less hawkish Fed, euro at 1-month high

THE euro climbed back above parity against the US dollar for the first time in a month on Wednesday (Oct 26) after poor US economic data reinforced speculation that the Federal Reserve (Fed) will slow its interest rate hikes, sending the greenback tumbling.

The European common currency rose as high as US$1.0048, the highest since Sep 20, and was last up 0.5 per cent at US$1.100215.

Sterling rose 0.9 per cent to US$1.1574, its highest since Sep 14, extending the previous day's 1.6 per cent gain when markets took succour from Rishi Sunak becoming Britain's prime minister, and the US dollar also fell against the Japanese yen, sliding 0.6 per cent to 147.0.

"It's a continuation of the (US dollar) sell-off that we've seen since the end of last week. Markets are anticipating a potential slowdown in the pace of Fed hiking," said Lee Hardman, a currency analyst at MUFG.

"We don't think that's going to happen at the next meeting in November, but certainly by December there's a higher probability they could step down the pace to 50 basis points rather than the 75 basis points we've seen recently."

The aggressive pace of Fed tightening has sent the US dollar higher this year.

Fed officials have begun sounding out their desire to slow the pace of increases soon, according to a Wall Street Journal report on Friday that caused markets to reprice.

This was reinforced by Tuesday data showing that US home prices sank in August as surging mortgage rates sapped demand, in the latest sign that Fed rate increases are already working to slow the world's biggest economy.

Traders and economists predict another 75 basis point increase next Wednesday, but there is a growing view that it will slow to half a point in December.

The benchmark 10-year US Treasury yield continued its descent from last week's multi-year high of 4.338 per cent, and was last down four basis points at 4.069 per cent.

The Canadian dollar also firmed to as much as 1.3512 per US dollar, its strongest in three weeks, ahead of a Bank of Canada policy meeting late in the day at which analysts polled by Reuters expect a rate increase of 50 basis points.

That would be the second consecutive reduction in the size of rate rises after a 100 basis point move in July and 75 basis points last month.

The US dollar was also weaker elsewhere, falling around 0.5 per cent on both the Norwegian krone and Swedish krona, and over 1.5 per cent on China's offshore yuan, while the onshore yuan finished the domestic trading session at 7.1825 per US dollar, the strongest close since Oct 12.

Market participants became cautious after major state-owned banks were spotted selling the US dollar in the previous session to stabilise the market, traders said, wondering if the yuan has reached its peak weakness for the time being.

The Australian dollar rose 1.24 per cent to US$0.64735 as hotter-than-expected inflation data put pressure on the Reserve Bank ahead of a rate decision next week.

Cryptocurrencies extended their sharp rallies from the day before. Bitcoin was 12.83 per cent higher at around US$20,700, and ether was up 5.1 per cent just above US$1,500, building on Tuesday's 8.7 per cent surge. REUTERS

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