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Risk appetite is returning, the dollar is falling
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Pound rises to more than one-week high after BOE rate decision
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Aussie, Kiwi rise against US dollar
(Update to US in the afternoon)
By Gertrude Chavez-Dreyfuss and Saqib Iqbal Ahmed
NEW YORK, Nov 2 (Reuters) – The dollar fell across the board on Thursday as investors’ appetite for riskier currencies grew as they bet the Federal Reserve finished raising interest rates after keeping them unchanged in the previous session.
The Fed left interest rates unchanged on Wednesday as policymakers tried to determine whether financial conditions may be tight enough to control inflation or whether an economy that continues to beat expectations may need even more restraint.
However, investors are increasingly convinced that the peak in US interest rates has been reached, with Fed funds futures holding on to a sub-20% chance of a rate hike in December.
That sentiment helped boost investors’ risk appetite on Thursday, helping lift stocks and high-yielding assets such as commodities and emerging-market currencies.
Brad Bechtel, global head of FX at Jefferies in New York, said the Fed is likely done raising rates, but he sees reason for further tightening 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 debate a little bit whether they would raise another 25 (basis points) or not. It doesn’t matter. The broader theme is that the Fed is almost close to the top.”
The dollar index, which measures the currency’s strength against a basket of six rivals, was 0.3% lower at 106.14.
“Markets weren’t expecting any further tightening before yesterday, so there’s no change there. But there may be a bit more confidence on the margins that tapering is the next step,” said Shaun Osborne, chief currency strategist at Scotia Bank. Note.
Sterling, meanwhile, rose after the Bank of England left rates at a 15-year high and stressed it did not expect to start cutting them anytime soon.
The pound rose as much as 0.6% against the dollar to $1.2225, the highest level in 1-1/2 weeks, after the BoE voted 6-3 to keep rates at 5.25%, with the foreseeable ruled out a rate cut. Sterling was last up 0.4% at $1.2201.
The Australian dollar, often used as a proxy for risk appetite, jumped 0.54% on Thursday, while the New Zealand dollar rose 0.8%.
Norway’s central bank also left its benchmark rate unchanged, as widely expected, but said it was likely to raise borrowing costs next month if inflation did not show continued decline.
The dollar was 0.2% lower against the Norwegian krone at 11.16.
Against the yen, the dollar fell 0.3% to 150.44 from a one-year high reached earlier this week.
The yen is struggling to gain traction even as the Bank of Japan loosened its yield curve control policy again on Tuesday.
A drop to a one-year low of 151.74 per dollar and a 15-year low of 160.83 per euro after the BoJ announcement prompted traders to watch for possible intervention to support the currency.
Central bank governor Kazuo Ueda will continue to unwind his ultra-loose monetary policy and seek to exit a decade-long accommodative regime sometime next year, sources told Reuters.
Bitcoin fell 1.7% to $34,836 after hitting an 18-month high of $35,968 earlier in the session.
(Reporting by Gertrude Chavez-Dreyfuss and Saqib Iqbal Ahmed 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 Alexander Smith and Susan Fenton)