Dollar Weakens Amid Fading Rate Hike Speculation

By Karen Brettell

NEW YORK (Reuters) – The dollar slipped against a basket of currencies on Friday as investors continued to unload long positions that benefited from an increase in bets that the Federal Reserve will raise rates sooner than previously expected.

The greenback also faced seasonal weakness that is typical in late October.

Investors have taken profits since the dollar index hit a one-year high last week, when concerns that inflation will remain stubbornly high for longer led investors to bring forward expectations on when the Fed will first raise rates to mid-2022.

That repricing momentum has now faded as investors take profits and also build expectations for sooner rate increases in other currencies.

“There’s a bit of a positioning unwind taking place, we’ve obviously seen a firmer dollar since the September Fed,” said Mazen Issa, senior fx strategist at TD Securities in New York. “That also dovetails with the seasonal tendency for the dollar to soften into the end of the month.”

The Fed said at its September meeting that it will likely begin reducing its monthly bond purchases as soon as November and signaled interest rate increases may follow more quickly than expected.

The dollar index fell 0.17% to 93.57, and is down from a one-year high of 94.56 last week. The euro gained 0.18% to $1.1646.

Issa expects the dollar to regain traction as global central banks push back against the aggressive repricing of rate hikes, while the Fed is likely to remain relatively hawkish and move forward with a reduction in its bond purchase program.

“Once we get the pushback from other central banks and the Fed’s committed to taper we should see dollar dips really being shallow,” Issa said.

The Aussie dollar outperformed on Friday, gaining 0.43% to $0.7498.

The yen gained against the greenback, though it remains the weakest performer having dropped by more than 10% this year. The dollar was last down 0.19% against the Japanese currency at 113.77 yen.

Graphic: World FX rates https://graphics.reuters.com/GLOBAL-CURRENCIES-PERFORMANCE/0100301V041/index.html

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Currency bid prices at 9:52AM (1352 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 93.5660 93.7410 -0.17% 3.984% +93.7890 +93.5700

Euro/Dollar $1.1646 $1.1625 +0.18% -4.68% +$1.1647 +$1.1621

Dollar/Yen 113.7650 114.0200 -0.19% +10.18% +114.2000 +113.7200

Euro/Yen 132.48 132.50 -0.02% +4.38% +132.7900 +132.3100

Dollar/Swiss 0.9154 0.9184 -0.32% +3.48% +0.9185 +0.9154

Sterling/Dollar $1.3785 $1.3792 -0.03% +0.92% +$1.3815 +$1.3771

Dollar/Canadian 1.2327 1.2371 -0.35% -3.19% +1.2375 +1.2321

Aussie/Dollar $0.7498 $0.7466 +0.43% -2.53% +$0.7512 +$0.7454

Euro/Swiss 1.0662 1.0673 -0.10% -1.34% +1.0682 +1.0661

Euro/Sterling 0.8445 0.8423 +0.26% -5.51% +0.8453 +0.8422

NZ $0.7160 $0.7157 -0.03% -0.36% +$0.7188 +$0.7138

Dollar/Dollar

Dollar/Norway 8.3385 8.3690 -0.13% -2.66% +8.3730 +8.3235

Euro/Norway 9.7130 9.7145 -0.02% -7.20% +9.7350 +9.6890

Dollar/Sweden 8.5626 8.6029 -0.24% +4.47% +8.6145 +8.5624

Euro/Sweden 9.9731 9.9973 -0.24% -1.03% +10.0050 +9.9712

(Reporting by Karen Brettell; Editing by Susan Fenton)