Dollar falls as risk sentiment improves after Fed minutes

SINGAPORE (Reuters) – The US dollar weakened broadly on Thursday as investors, encouraged by the prospect of a slower pace of interest rate hikes from the Federal Reserve, bet on riskier assets.

The eagerly awaited reading from the November 1-2 Fed meeting showed that officials were largely satisfied that they could now move in smaller steps.

“I think it is now almost certain that we will see the FOMC ease its pace of tightening starting in December,” said Carol Kong, a currency strategist at the Commonwealth Bank of Australia (CBA).

The dollar index, which measures the greenback against six major pairs, was down 0.066% at 105.830, after falling 1% overnight.

This month, the Fed raised its benchmark rate by three-quarters of a percentage point for the fourth straight time in an effort to rein in stifling inflation.

But slightly cooler-than-expected US consumer price data has raised hopes of a more moderate pace of increases. Those hopes sent the dollar index down 5.1% in November, putting it on track for its worst monthly performance in 12 years.

Citi strategists said there is still substantial uncertainty about how high rates could rise, despite the consensus that rates will rise more slowly.

The minutes also showed an emerging debate within the Fed about the risks that rapid policy tightening could pose to economic growth and financial stability. At the same time, policymakers recognized that there had been little demonstrable progress on inflation and that rates still needed to rise.

Data on Wednesday showed US business activity contracted for a fifth straight month in November, with a measure of new orders falling to its lowest level in two and a half years as higher interest rates slowed. the demand.

CBA’s Kong cautioned, however, that markets are overly optimistic about a possible imminent end to the tightening cycle, noting that there was still strong support for the US dollar due to China’s zero-COVID policies.

Rising coronavirus cases have prompted Chinese cities to impose more restrictions, raising investor concerns about the economy and putting a cap on risk appetite.

The Australian dollar was up 0.25% against the greenback at $0.675, while the kiwi was up 0.26% at $0.625.

The euro was up 0.23% at $1.0419, while sterling was last trading at $1.2083, up 0.26% on the day. The pound rose 1.4% overnight after preliminary data for British economic activity beat expectations, although it still showed a contraction was underway.

The Japanese yen strengthened 0.54% against the dollar at 138.84 to the dollar.

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

(Reporting by Ankur Banerjee in Singapore; Editing by Edwina Gibbs)

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