Greenback falls with US rates seen at peak, pound firm after BOE holds rates
THE US dollar fell broadly on Thursday (Nov 2) as investors grew more convinced that a peak in US interest rates has been reached after the Federal Reserve kept them on hold the previous day.
Sterling held firm after the Bank of England (BOE) kept rates at a 15-year high and stressed that it did not expect to start cutting them any time soon.
Fed chair Jerome Powell left the door open to another hike, but with the funds rate target ceiling at a 22-year high of 5.5 per cent, he said the risks of doing too much or too little were now balanced.
Markets took that as a green light to stick with a sub 20 per cent chance that rates will rise in December. Ten-year Treasury yields were down 24 basis points from Wednesday’s highs, equities rallied and risk-sensitive currencies bounced.
“Powell had the opportunity to raise a bit of concern with the latest rise in short-term inflation expectations, but he chose not to do that,” said Kristoffer Lomholt, head of FX research at Danske Bank.
“There was a possibility of sending a much more hawkish signal, but he chose not to and I think that’s what markets are reacting to.”
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
The US dollar index, which measures the greenback against six other major currencies, was 0.5 per cent lower at 105.94 and down by around 1 per cent from Wednesday’s high.
The pound rose as much as 0.6 per cent against the US dollar to US$1.2222, its highest level in one-and-a-half weeks after the BOE voted 6-3 to hold rates steady at a 15-year peak of 5.25 per cent, while ruling out rate cuts any time soon.
“The question going forward is how long this standstill will last for – with financial markets expecting it to be a considerable period of smooth sailing,” said Jeremy Batstone-Carr, strategist at Raymond James.
“The door for future rate hikes still sits ajar, and the MPC (Monetary Policy Committee) will likely remain vigilant for further fluctuations and risks in the months ahead.”
Norway’s central bank also left its benchmark rate unchanged as widely expected, but said it would likely raise borrowing costs next month unless inflation showed a continued decline.
The Norwegian crown strengthened to 11.176 per US dollar, but was down to 11.899 against the broadly stronger euro.
The euro rose more than 0.8 per cent against the US dollar to US$1.0654, the Swiss franc was higher for a second day and the yen was helped further from a one-year low to 150.07 per US dollar.
The yen has been struggling for traction, even as the Bank of Japan (BOJ) on Tuesday made another relaxation of its yield curve control policy.
A fall to a one-year low of 151.74 per US dollar and 15-year low of 160.83 per euro after the BOJ’s announcement had traders on watch for possible intervention to prop up the currency.
“The important thing is the tempo of the fall,” Danske Bank’s Lomholt said. “That’s when we have seen them verbally come out and talk against the appreciation.”
Kazuo Ueda, the central bank’s governor, will continue to dismantle its ultra-loose monetary policy and look to exit the decade-long accommodative regime sometime next year, sources told Reuters.
The Australian dollar, which jumped 0.9 per cent on Wednesday, was up another 0.7 per cent on Thursday to touch a near five-week high of US$0.6446. The New Zealand dollar rose 1 per cent to a two-week peak of US$0.5910.
Bitcoin, sometimes traded as a proxy for risk-taking, broke above US$35,000 to hit its highest level since May 2022. REUTERS
Share with us your feedback on BT's products and services
