US dollar slips as Fed minutes-fuelled bounce fades

London

THE US dollar slipped on Thursday but remained well above three-month lows hit overnight after minutes from the Federal Reserve's last policy meeting showed there was more talk of it tapering its bond purchases than investors had expected.

In the Fed minutes, several policymakers said a discussion about reducing the pace of asset purchases would be appropriate "at some point" if the US economic recovery continues to gain momentum.

That surprised markets, with some investors unwinding some of their short dollar positions and pushing the US dollar higher as they believed the Fed would remain on hold for the foreseeable future despite strong data.

However, the US dollar's gains fizzled partially in London, trading with the greenback declining against most of its peers. Against a basket of its rivals, the US dollar was down 0.25 per cent at 90.00 but remained above a late-February low of 89.686 hit on May 19.

The US dollar's overnight bounce coincided with a spike in US Treasury yields and weaker stocks. Fed fund futures pricing for rate changes in late-2022 and early 2023 remain steady from earlier this week.

"The Fed minutes might end the recent period of dollar weakness for now, but it is still too early for a trend reversal," Commerzbank strategists said in a daily note.

The US dollar has been declining over the past few weeks as key Fed officials have repeatedly said they were not ready to discuss reducing stimulus, judging that spikes in inflation would be transient.

The biggest beneficiary of the weak dollar trend was the Aussie dollar which also received a boost from robust April jobs data. It was up 0.4 per cent at US$0.7749.

The euro hopped 0.2 per cent higher at US$1.22 after having slipped 0.4 per cent in the previous session and off a three-month high of US$1.2245.

Cryptocurrencies were volatile after suffering one of their biggest losses on May 19 in the wake of China's decision to ban financial and payment institutions from providing digital currency services.

Bitcoin last traded up 10 per cent at US$40,526, having fallen as low as US$30,066 on May 19, which represented a whopping 54 per cent fall from its record high hit just over a month ago.

Smaller rival Ether gained 13 per cent at US$2,765. On May 19, it fell 22.8 per cent, its biggest daily fall since March 2020. REUTERS