The dollar has experienced a broad decline on Thursday, with risk-sensitive Asia-Pacific currencies leading the gains. This comes as investors grow more convinced of a likely peak in U.S. interest rates after the Federal Reserve’s decision to leave rates on hold. Attention has now shifted to the Bank of England and whether it will convey a similar message in today’s policy announcement.
Although Fed Chair Jerome Powell left the door open to another interest rate hike, he noted that the risks of doing too much or too little were now balanced, with the funds rate target ceiling at a 22-year high of 5.5 percent. This has led markets to believe that there is a sub 20 percent chance that rates will rise in December. As a result, ten-year Treasury yields have dropped, equities have rallied, and risk-sensitive currencies have bounced back.
Kristoffer Lomholt, head of FX research at Danske Bank, highlighted that Powell had the opportunity to express concern about the latest rise in short-term inflation expectations, but chose not to do so. Lomholt believes that Powell’s decision to not send a more hawkish signal is what the markets are reacting to.
The dollar index, which measures the currency against six major peers, has fallen by 0.1 percent to 106.41, representing an 0.8 percent decrease from Wednesday’s high. The euro, on the other hand, has risen by 0.3 percent to $1.0598, and the Swiss franc has seen gains for a second consecutive day. The yen, which previously hit a one-year low, has also been helped further from its low point to 150.155 per dollar.
The Japanese yen has struggled to gain traction, despite the Bank of Japan’s recent relaxation of its yield curve control policy. Traders were on watch for possible intervention to support the currency after its fall to a one-year low against the dollar and a 15-year low against the euro following the BoJ’s announcement. Lomholt notes that the tempo of the yen’s fall is an important factor that prompts verbal intervention against its appreciation.
Sterling has seen a slight increase of 0.2 percent to $1.2173, but has slipped to 87.14 per euro in anticipation of the Bank of England keeping rates at high levels. Market expectations indicate that there is almost a 90 percent chance of rates being held at a 15-year high during the Bank of England’s announcement later today. However, there is not yet full pricing for a rate cut until September 2024, which is after cuts are anticipated to have begun on the continent.
RaboBank FX strategist Jane Foley suggests that pricing reflects the belief that Bank of England rates will have to remain high for several months due to inflation risks in the UK. Foley also predicts that if the Bank of England indicates that rates will stay on hold for a while, sterling is likely to regain some ground against the euro.
In other currency news, the Australian dollar has risen by 0.6 percent on Thursday, after a 0.9 percent jump on Wednesday, reaching a three-week high of $0.6439. The New Zealand dollar has also hit a two-week peak of $0.5896.
Bitcoin, which is sometimes seen as a proxy for risk-taking, has surpassed $35,000 for the first time since May 2022.
More detail via www.theepochtimes.com here… ( Image via www.theepochtimes.com )
