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

U.S. one-dollar bills are seen in front of a stock chart displayed in this photo taken on Feb. 8, 2021. REUTERS/Dado Ruvic/Illustration/File Photo Acquire Licensing Rights

  • Risk appetite is returning, the dollar is falling
  • Pound rises to more than one-week high after BOE rate decision
  • Aussie, Kiwi rise against US dollar

LONDON/NEW YORK, Nov 2 (Reuters) – The U.S. dollar weakened sharply on Thursday as investors bet that the Federal Reserve was done raising interest rates after holding them steady in the previous session.

Sterling, meanwhile, held firm 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 perception that US interest rates have peaked has increased risk appetite, supporting stocks and high-yielding assets such as commodities and emerging market currencies.

Fed Chairman Jerome Powell left the door open to more hikes, but with the target cap on the funds rate at a 22-year high of 5.5%, he said the risks of doing too much or too little were now balanced.

Markets took this as a green light to hold on to a sub-20% chance of a rate hike in December.

Brad Bechtel, global head of FX at Jefferies in New York, said the Fed is likely done raising rates, but sees reason for further tightening given the still-resilient US 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.”

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 keep rates at a 15-year high of 5.25%, ruling out a rate cut . anytime 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 was likely to raise borrowing costs next month if inflation did not show continued decline.

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

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

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

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

Bitcoin, sometimes traded as a proxy for risk-taking, has breached the $35,000 mark, reaching its highest level since May 2022.

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Currency bid prices at 10:49 (1449 GMT)

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

Our standards: Thomson Reuters Trust Principles.

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