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Written by Samuel Indyk
LONDON (Reuters) – The dollar extended losses on Thursday after minutes from the Federal Reserve’s November meeting supported the view that the central bank will cut rates and raise interest rates in smaller steps than from its December meeting.
The eagerly awaited readout for the November 1-2 meeting showed officials are largely satisfied they can now move in smaller steps, with the potential for a 50 basis point rate hike next month after four consecutive increases of $1. 75 basis points.
“The Fed will be happy to move interest rates by 50 basis points in December and 25 basis points from the first meeting next year,” said Niels Christensen, senior analyst at Nordea, noting that the Fed will still feel it needs to do more. to achieve lower inflation.
“As long as the Fed sees a stronger labor market, it won’t have much concern about tightening,” Christensen said.
The dollar index, which tracks the greenback against six major peers, fell 0.2% to 105.75, after falling 1.1% on Wednesday.
The Federal Reserve raised interest rates to levels not seen since 2008, but lower-than-expected US consumer price data fueled expectations of a more moderate pace in hikes.
Those hopes sent the dollar index down 5.2% in November, putting it on track for its worst monthly performance in 12 years.
“There are not many dollar buyers these days after the correction that rose in the euro against the dollar in the first half of November,” added Christensen of Nordea.
The euro held on to gains after the calculation of the European Central Bank’s October meeting showed that policy makers fear the possibility of inflation being entrenched, justifying their expectations of further interest rate hikes.
The single currency recently rose 0.2% at $1.0415, while the British pound traded at $1.2135, up 0.7% on the day. The British pound rose 1.4% on Wednesday after preliminary data on British economic activity beat expectations, although it still showed that a contraction is on its way.
The euro fell 0.4 percent against the Swedish krona after the Swedish Riksbank raised interest rates by 75 basis points, in line with expectations in a Reuters poll, but indicated that additional increases were needed to combat soaring inflation.
The yuan strengthened after Chinese state media quoted the cabinet as saying that Beijing will use timely cuts in the banks’ reserve requirement ratio, along with other monetary policy tools, to keep liquidity reasonably ample.
Meanwhile, billionaire investor Bill Ackman said he is betting that the Hong Kong dollar will decline and that its peg to the US dollar may break.
Since May, the Hong Kong dollar has been holding near the weaker end of its range, although it has rallied slightly in recent weeks as markets have begun to price in the peak in US rates. The last time it was 7.8102 per dollar.
The Japanese yen was one of the strongest gainers among the major currencies, rising 0.9% against the dollar to 138.285.
US markets will be closed on Thursday for Thanksgiving and liquidity is likely to be thinner than usual.
(Reporting by Samuel Indyk in London and Ankur Banerjee in Singapore; Editing by Edwina Gibbs, Edmund Kelman and Margarita Choi)
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