Greenback rebounds as investors buy post-Fed dip

London

THE US dollar rebounded on Thursday (Nov 4), recovering after the Federal Reserve repeated it saw high inflation as transitory, while all eyes were on the Bank of England (BOE), which could become the first major central bank to raise rates since the Covid-19 crisis.

The Fed announced on Nov 3 a US$15 billion monthly cut to its US$120 billion in monthly purchases of Treasuries and mortgage-backed securities, but Chairman Jerome Powell said he was in no rush to hike borrowing costs.

The move was initially seen as favourable to risky assets, with Wall Street indexes closing at record highs while the safe-haven dollar fell sharply against a basket of major currencies.

Gradually, however, investors took a more balanced view of the Fed monetary policy update and the overall picture painted by fresh upbeat data for the US services industry.

The dollar index swung back from a low of 93.80 points shortly after the Fed announcement on Nov 3 to 94.25 points at 0800 GMT on Thursday (Nov 4), its highest since Nov 1.

European Central Bank President Christine Lagarde on Nov 3 pushed back on market bets for a rate hike as soon as next October, and said it was very unlikely such a move would occur in 2022.

The euro fell against the dollar on Thursday (Nov 4), down 0.5 per cent at US$1.1578.

Sterling, which had initially led the gains on the dollar after the Fed, was down 0.3 per cent at US$1.3644 while investors waited to see whether BOE policymakers would announce a first post-pandemic interest rate hike.

Minutes of the BOE's Monetary Policy Committee meeting are due at 1200 GMT. Markets are pricing in a rate rise from the BOE, but economists polled by Reuters said the move was too close to call, as Britain, like much of the world, grapples with balancing rate rises to combat inflation without compromising the economic recovery.

Elsewhere, the yen was just slightly lower with the dollar at 113.98 yen, within a good leap of the dollar's multi-year high of 114.69 yen hit last month.

The Aussie dollar lost 0.26 per cent at US$0.7430, close to the levels it fell to on Nov 2 after the Reserve Bank of Australia adopted a dovish tone at its key meeting.

In the world of cryptocurrencies, Bitcoin was down about 2 per cent at US$61,589, having largely traded sideways since it hit its all-time high of US$67,000 last month. REUTERS