Dollar falls as bets increase for a Fed By Stocksak that is less hawkish

© Stocksak. FILEPHOTO: This illustration, taken July 17, 2022, shows U.S. Dollar banknotes. REUTERS/Dado Ruvic/Illustration

Kevin Buckland

TOKYO, Stocksak – The dollar fell to a low of $33.70 on Wednesday against major peers, as speculation about a less hawkish Federal Reserve grew.

Sterling remained close to the six-week high of Tuesday, after Rishi Sunak, the British Prime Minister, promised to steer the country out from an economic crisis.

The euro was trading at less than half of a cent off parity with its greenback, but it remained close to its six-week peak. The European Central Bank has decided policy on Thursday. Most people expect it to raise rates by 75basis points.

The – which measures currency against six peers including sterling and the euro – was little altered at 111.01, close to the previous session’s low of 110.75, the lowest level for the currency since Oct. 5.

Data from overnight showed that U.S. home values fell in August due to rising mortgage rates. This is despite recent signs that Fed rate hikes are already slowing the world’s largest economy.

Economists and traders predict another 75 basis points increase next Wednesday. However, the expectation is growing for a slowing down to half a percent in December.

“I’m still not sure if we can claim we’ve seen the U.S. dollars peak,” Ray Attrill of National Australia Bank (OTC), stated that “evidence is building” of a slowdown.

“If the market is comfortable with a Fed pivoted – if that’s the Fed stepping down at 50 basis points and possibly ending a tightening cycle South of 5% soon next year – then it’ll be time to call for U.S. dollar strength. But I’d like the Fed messaging next week to reach that conclusion before that happens.

U.S. long term Treasury yields continued to decline from last week’s multiyear highs at 4.338%. They are currently at 4.0833% in Tokyo.

This put pressure on both the dollar and the yen due to their sensitivity to U.S. rate rates. The pair settled at 147.99 after a 0.7% slide on Tuesday.

The dollar reached a 32 year high of 151.94yen on Friday but was then beaten back to as low as 144.55 in two bouts of Bank of Japan intervention either end of the weekend.

However, the fundamentals favor a weaker currency. The BOJ is expected to keep stimulus settings unchanged on Friday, which would be contrary to monetary tightening in developed markets.

Sterling fell 0.2% to $1.1448, but was still close Tuesday’s high of $1.1500. This level was last seen on Sept. 15.

After jumping to its highest point since Oct. 5, at $0.9995, the euro fell 0.14% to $0.99545.

The Australian dollar was 0.3% lower at $0.6386 despite a brief rise to $0.6412 following quarterly consumer inflation data that narrowly beat economists’ estimates. This put pressure on the Reserve Bank ahead Tuesday’s policy meeting.

The highest recorded value was $0.6412 in the previous session, which was Oct. 7.

“The Aussie’s weak attempt at rallying on core CPI that exceeds expectations is not a promising indicator for its near-term prospects,” said Sean Callow of Westpac, a senior FX strategist.

“A further pullback in U.S. dollars seems to be the best chance that the Aussie can sustain pushes higher than $0.64.” It will trade either side of $0.63 otherwise.

Also, cryptocurrencies were firm after sharp rallies Tuesday amid dollar weakness. After a 3.9% overnight jump, the price was 0.14% higher at $21,116. Ether was up 0.45% to $1,466.30 following Tuesday’s 8.7% surge.

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Stocksak Editorial

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