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FOREX-Dollar Slides From 16-Month Highs As Fed Warmongering Dominates

By on November 25, 2021 0

* Dollar index slips, still close to 16-month highs

* Fed meeting minutes show willingness to hike

* Swedish Riksbank keeps rates on hold

* Chart: Global exchange rates (Price update, add comment)

By Elizabeth Howcroft

LONDON, Nov. 25 (Reuters) – The dollar slipped on Thursday but was still close to its highest since July 2020 against the euro, having strengthened on market expectations that the US Federal Reserve will hike rates more earlier than the other major central banks.

The November 2-3 Fed meeting minutes boosted the dollar on Wednesday, indicating that the Fed had become more concerned about rising inflation. Various policymakers have said they would be willing to accelerate the reduction in their bond buying program if high inflation continues and to raise interest rates more quickly.

Data released on Wednesday showed jobless claims in the United States were at their lowest in 52 years, consumer spending rose more than expected in October, and inflation was on the rise.

But on Thursday, the dollar’s uptrend – which has seen it gain around 2.7% this month – came to a halt, with the dollar index falling 0.1% to 96.707 at 1242 GMT , from a 16-month high of 96.938 reached on Wednesday night.

Against the Japanese yen, the dollar was just below a five-year high.

Neil Jones, head of currency sales at Mizuho, ​​said he expects the dollar’s decline to be a “temporary blow.”

“After Thanksgiving next week and through December, I’m looking for new dollar strength, albeit at a fairly moderate pace,” he said.

Jones said that towards the end of the year the seasonal demand for dollars will also contribute to its strength.

But, in a note to clients, ANZ strategists John Bromhead and Daniel Been said that with the US markets closing for Thanksgiving, “a period of tactical consolidation may be near.”

The euro was up 0.2% against the dollar at $ 1.1224, a slight rally. But it has lost another 2.9% so far this month, weighed down by expectations that the European Central Bank is more accommodating than the Fed, as well as, more recently, a new wave of COVID-19 restrictions. in Europe.

“Since this particular trade-weighted dollar measure is heavily skewed against European currencies, the combination of a bullish Fed and fourth waves in Europe makes the DXY (dollar index) look very long,” said writes ING’s currency strategists in a note. to clients.

An increase in coronavirus infections in Germany and unusually high inflation rates are weighing on consumer morale in Europe’s largest economy, an investigation found on Thursday.

Sweden’s central bank has left its monetary policy unchanged, arguing that inflation will slow down next year. It has scheduled its first post-pandemic rate hike for the end of 2024.

The Swedish krona strengthened slightly and appreciated by around 0.4% to 9.0739 against the dollar and around 0.3% to 10.185 against the euro. But it was still set for its worst month against the euro since March 2020.

The Australian dollar – seen as a liquid indicator of risk appetite – lost 0.2% to $ 0.7185.

The New Zealand dollar lost 0.4% to $ 0.6846, extending its losses from the previous session, when the country’s Reserve Bank raised the policy rate by a quarter of a percentage point, disappointing the bulls hoping for a half point increase.

In cryptocurrencies, bitcoin rose about 2.6% to $ 58,646.11, after recovering from the month’s low of $ 55,128.60 it hit on Tuesday.

(Reporting by Elizabeth Howcroft, editing by Angus MacSwan, William Maclean)