US dollar retreats as risk appetite rises, Fed rate hikes seen as done

US dollar retreats as risk appetite rises, Fed rate hikes seen as done

(Removes extraneous word “be” in the quote in the 7th paragraph)

By Samuel Indyk and Gertrude Chavez-Dreyfuss

LONDON/NEW YORK (Reuters) – The U.S. dollar weakened broadly on Thursday, as investors bet that the Federal Reserve is done raising interest rates after holding them steady in the previous session.

Sterling, meanwhile, held firm after the Bank of England kept rates at a 15-year high and stressed that it did not expect to start cutting them any time soon.

The perception that a peak in U.S. interest rates has been reached raised risk appetite, boosting equities and high-yielding assets such as commodity and emerging market currencies.

Fed Chair Jerome Powell left the door open to another hike, but with the funds rate target ceiling at a 22-year high of 5.5% he said the risks of doing too much or too little were now balanced.

Markets took that as a green light to stick with a sub-20% chance that rates will rise in December.

Brad Bechtel, global head of FX, at Jefferies in New York, said the Fed is probably finished hiking rates, but he could see the rationale for tightening one more time given the still-resilient U.S. economy.

“But at the same time, everyone is looking at a slowdown and inflation is going in the right direction,” Bechtel said. “We can kind of debate whether they would hike another 25 (basis points) or not. It doesn’t matter. The broader theme is that the Fed is pretty much near the peak.”

In late morning trading, the dollar index, which measures the greenback against six other major currencies, was 0.3% lower at 106.12.

The pound rose as much as 0.6% against the dollar to $1.2225, its highest level in 1-1/2 weeks after the BoE voted 6-3 to hold rates steady at a 15-year peak of 5.25%, while ruling out rate cuts any time soon. Sterling was last up 0.3% at $1.2176.

Norway’s central bank also left its benchmark rate unchanged, as widely expected, but said it would likely raise borrowing costs next month unless inflation showed a continued decline.

The dollar rose 0.1% against the Norwegian crown to 11.19.

The euro rose 0.6% against the dollar to $1.0635. Versus the Swiss franc, the dollar slid 0.4% to 0.9042 francs.

Against the yen, the dollar fell 0.4% to 150.275, off a one-year high earlier this week.

The yen has been struggling for traction, even as the Bank of Japan on Tuesday made another relaxation of its yield curve control policy.

A fall to a one-year low of 151.74 per dollar and 15-year low of 160.83 per euro after the BoJ’s announcement had traders on watch for possible intervention to prop up the currency.

Kazuo Ueda, the central bank’s governor, will continue to dismantle its ultra-loose monetary policy and look to exit the decade-long accommodative regime sometime next year, sources told Reuters.

The Australian dollar, which jumped 0.9% on Wednesday, was up another 0.5% on Thursday to touch a near five-week high of US$0.6456. The New Zealand dollar rose to a two-week peak of US$0.59107

Bitcoin, sometimes traded as a proxy for risk-taking, broke above $35,000 to hit its highest level since May 2022.

(This story has been refiled to remove an extraneous word ‘be’ in the quote in paragraph 7)

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Currency bid prices at 10:49AM (1449 GMT)

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

Previous Change

Session

Dollar index 106.0800 106.4600 -0.34% 2.503% +106.4800 +105.8000

Euro/Dollar $1.0636 $1.0571 +0.62% -0.73% +$1.0667 +$1.0569

Dollar/Yen 150.2850 150.9500 -0.45% +14.62% +150.9500 +149.8450

Euro/Yen 159.84 159.56 +0.18% +13.93% +160.0800 +159.0800

Dollar/Swiss 0.9042 0.9079 -0.40% -2.20% +0.9076 +0.9018

Sterling/Dollar $1.2181 $1.2150 +0.28% +0.74% +$1.2225 +$1.2132

Dollar/Canadian 1.3792 1.3857 -0.46% +1.80% +1.3853 +1.3770

Aussie/Dollar $0.6425 $0.6394 +0.53% -5.71% +$0.6456 +$0.6394

Euro/Swiss 0.9615 0.9594 +0.22% -2.83% +0.9631 +0.9567

Euro/Sterling 0.8731 0.8699 +0.37% -1.28% +0.8735 +0.8690

NZ $0.5890 $0.5847 +0.74% -7.24% +$0.5917 +$0.5844

Dollar/Dollar

Dollar/Norway 11.1750 11.1780 +0.07% +13.98% +11.1930 +11.1160

Euro/Norway 11.8870 11.8170 +0.59% +13.28% +11.9028 +11.7811

Dollar/Sweden 11.1185 11.1744 +0.09% +6.83% +11.1834 +11.0680

Euro/Sweden 11.8250 11.8138 +0.09% +6.06% +11.8418 +11.7875

(Reporting by Gertrude Chavez-Dreyfuss in New York and Samuel Indyk in London; Additional reporting by Danilo Masoni in Milan, Rae Wee in Singapore, and Stella Qiu in Sydney; Editing by Angus MacSwan, Kirsten Donovan and Alexander Smith)