US dollar dips on dovish remarks by Fed chief

THE US dollar fell on Friday (Dec 1), after two days of gains, as Federal Reserve chair Jerome Powell struck a cautious tone on further interest rate moves, saying that the risk of under or over-tightening is now more balanced. The market viewed his comments as dovish, with investors pricing in expectations that the Fed is likely done raising rates. Powell said it was clear that US monetary policy was slowing the economy as expected, with a benchmark overnight interest rate “well into restrictive territory”. He noted, however, that the Fed is prepared to tighten policy further if deemed appropriate.

Following Powell’s remarks, US rate futures on Friday priced in a 64 per cent chance of a rate cut by the March meeting, compared to 43 per cent late on Thursday, according to the CME’s FedWatch tool.

Powell’s remarks came after data showed the US manufacturing sector remained weak in November, affirming his comments that Fed rate hikes have started to slow the economy.

Softer US and eurozone inflation data on Thursday reinforced expectations that central banks in both regions might be done raising interest rates, leading traders to bet on earlier cuts next year. Goldman Sachs on Friday said it expected the European Central Bank to deliver its first rate cut in the second quarter of 2024, compared to a previous forecast of a cut in the third quarter. Mixed economic data across Europe failed to set the tone for the euro, with a survey showing a downturn in eurozone manufacturing activity eased slightly last month but remained deeply in the red.

Britain also reported contraction in manufacturing but an improved reading for a third straight month. The euro was last down 0.1 per cent at US$1.0874, cutting losses and benefiting from a sell-off in the dollar following Powell’s comments. Sterling rose 0.5 per cent to US$1.2699.

Against the yen, the dollar dropped 0.9per cent to 146.855 yen. The yen was on course for its third straight week of gains, pulling it away from the near 33-year low of 151.92 per dollar touched in the middle of November. REUTERS