Cyclical currencies lead after dust settles on Fed

London

CURRENCIES highly geared to the economic cycle, including the Kiwi dollar and Norway's crown, rose against a broadly struggling US dollar on Wednesday after top US policymakers reaffirmed tighter monetary policy was a distant possibility.

The dollar jumped and stocks swooned last week after the Fed surprised markets by signalling much earlier rate hikes than investors previously expected.

But policymakers have since softened their stance, sending the greenback to its lowest in nearly a week, with both Mr Powell and New York Fed president John Williams saying the economic recovery required more time before any tapering of stimulus and higher borrowing costs are appropriate.

The Fed's dovish views contrasted with the relatively hawkish comments from Norway and New Zealand, which sent their currencies up by 0.3 per cent each against the greenback.

"High beta currencies are having a fairly decent day and week so far as the dust settles from the Fed a week ago," said Kenneth Broux, a strategist at Societe Generale in London.

Against a basket of its rivals, the greenback was flat at 91.772, holding near its lowest since June 17 and nearly a third below a two-month high hit last week.

The euro steadied below US$1.1950 and was on track for a third consecutive day of gains as purchasing managers' index data showed that euro zone business growth accelerated at its fastest pace in 15 years in June, following the easing of more lockdown measures.

The Japanese yen was the big loser after data showed factory activity expanded at the slowest pace in four months in June, with output shrinking fast with some traders reporting a pick up in yen-funded carry trades.

The unit was trading at its weakest level in nearly three months.

"The risk of US monetary policy being normalised sooner rather than later will continue to offer the dollar support, but it is unlikely to be the dominant factor in currency markets," Gavekal strategists said in a note, citing relative growth differentials and neutral positioning on the greenback as driving factors.

Elsewhere, Bitcoin was up around 5 per cent on the day, above the US$34,000 mark after dropping to as low as US$28,600 on June 22 - its lowest since January.

Ether was trading around US$2,000. REUTERS