Dollar extends losses as Fed minutes signal slower rate hikes By Reuters

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© Reuters. FILE PHOTO: U.S. dollar bills are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration

By Samuel Indyk

LONDON (Reuters) – The U.S. dollar extended losses on Thursday after minutes from the Federal Reserve’s November meeting supported the view that the central bank will cut and raise rates in smaller steps from its December meeting.

The eagerly awaited reading on November 1-2 showed that officials are largely satisfied that they can now move in smaller steps, with a 50-basis-point rate likely next month after four consecutive 75-basis-point increases.

“The Fed will be happy to move rates by 50 basis points in December and 25 basis points from the first meeting next year,” said Niels Christensen, chief analyst at Nordea, noting that the Fed will still feel it needs to do more to deliver. inflation down.

“As long as the Fed sees a stronger labor market, they don’t have a big concern about tightening,” Christensen said.

The , which measures the greenback against six major peers, was down 0.2% at 105.75, after slipping 1.1% on Wednesday.

The Fed raised interest rates to levels not seen since 2008, but slightly cooler-than-expected US consumer price data fueled expectations of a more moderate pace of growth.

Those hopes saw the dollar index slide 5.2% in November, putting it on track for its worst monthly performance in 12 years.

“There are not so many dollar buyers around these days after the correction higher in the euro-dollar in the first half of November,” added Nordea’s Christensen.

The euro held on to gains after the account from the European Central Bank’s October meeting showed policymakers fear inflation may be taking root, justifying their outlook for further rates.

The single currency was last up 0.2% at $1.0415, while sterling traded at $1.2135, up 0.7% on the day. The pound rallied 1.4% on Wednesday after preliminary UK economic activity data beat expectations, although it still showed a contraction was underway.

The euro weakened 0.4% against the Swedish krona after Sweden’s Riksbank raised rates by 75 basis points, in line with expectations in a Reuters poll, but signaled further increases would be needed to combat rising inflation.

The yuan [CNY/] firmed after Chinese state media quoted the cabinet as saying Beijing would use timely cuts in banks’ reserve requirement ratio (RRR), along with other monetary policy tools, to keep liquidity sufficiently ample.

Meanwhile, billionaire investor Bill Ackman said he is betting the Hong Kong dollar will fall and that its peg to the US dollar could break.

Since May, the Hong Kong dollar has been pegged near the weaker end of its band, although it has rallied slightly in recent weeks as markets begin to price in a peak in US rates. It was last at 7.8102 per dollar.

The Japanese yen was one of the strongest gainers among major currencies, climbing 0.9% against the dollar to 138.285.

US markets will be closed on Thursday for Thanksgiving and liquidity is likely to be thinner than usual.

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