US dollar edges up from 2½-month low after Fed minutes

THE greenback rebounded from a two-and-a-half month low on Wednesday (Nov 22) as the minutes from the Federal Reserve’s last meeting hinted that interest rates would likely remain restrictive for some time, even as the rate-hike cycle appeared to be over.

The Fed minutes showed the central bank would proceed “carefully” and that “all participants judged it appropriate to maintain” the current rate setting.

Fed officials agreed they would raise interest rates only if progress in controlling inflation faltered, reiterating recent comments by policymakers that left the door open for more tightening even as markets have moved to price rate cuts from early next year.

Markets are all but certain that the Fed will hold rates at its December meeting, while pricing in about a 28 per cent chance of a rate cut as early as March, according to CME’s FedWatch Tool.

“Almost four rate cuts are fully priced for next year and that looks very aggressive,” said Niels Christensen, chief analyst at Nordea.

“That said, it’s not unusual for the Fed to cut by 50 basis points when they start cutting, so it could be possible,” Christensen added.

The US dollar index, which measures it against a basket of currencies, was 0.1 per cent higher at 103.68, pulling away from its lowest level since the end of August at 103.17 – touched on Tuesday.

The index is down about 2.8 per cent in November and on course for its biggest monthly drop in a year.

Analysts said market participants were eager to take money off the table before liquidity fizzles out before the US Thanksgiving holiday.

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High US Treasury yields, which have buoyed the US dollar, have also tumbled from multi-year highs hit in October as investors ramp up bets that the Fed has finished increasing rates following a slowdown in US inflation in the same month.

Treasury yields slipped again on Wednesday, with the yield on the benchmark 10-year note last at 4.3751 per cent.

The euro last sat at US$1.0899 after rising to US$1.09655 on Tuesday, its highest against the US dollar since mid-August.

Sterling was little changed at US$1.2534, not far from a two-month high of US$1.2558 touched on Tuesday.

The Japanese yen was off 0.3 per cent to 148.81 per US dollar, after hitting a two-month high of 147.155 on Tuesday.

The Asian currency is up almost 2 per cent against the US dollar in November, but is still down around 12 per cent for the year.

While speculation that the Bank of Japan (BOJ) could exit from negative interest rates early next year should help stabilise the Japanese currency, it still faces strong headwinds, but for now, analysts think the risk of intervention has faded.

“The move in November is taking the pressure off the Bank of Japan,” Nordea’s Christensen said.

“They’re keeping their powder dry and hoping for a softer US dollar so they don’t need to intervene.”

More than 80 per cent of economists in a Reuters poll said the BOJ would end its negative interest rate policy next year, with more convinced the central bank is getting closer to exiting its controversial monetary settings.

In cryptocurrencies, bitcoin was up 2 per cent at US$36,468, rebounding from a 4.5 per cent drop the day before after prosecutors said Binance chief Changpeng Zhao will step down and plead guilty to breaking criminal US anti-money laundering laws as part of a US$4 billion settlement – resolving a years-long investigation into the world’s largest crypto exchange. REUTERS