FOREX-Dollar extends losses as Fed minutes signal slower rate hikes

(Price update)

Author: Samuel Indyk

LONDON, Nov 24 (Reuters) – The U.S. dollar extended losses on Thursday after minutes from the Federal Reserve’s November meeting supported views that the central bank will cut and raise rates in smaller increments from its December meeting.

The eagerly awaited results of the November 1-2 meeting showed that officials were largely content to move in smaller steps for now, with a 50 basis point rate hike likely next month after four consecutive 75 basis point hikes points.

“The Fed is happy to move rates 50 basis points in December and 25 basis points from the first meeting next year,” said Niels Christensen, chief analyst at Nordea, adding that the Fed will still feel it needs to do more to bring inflation down .

“As long as the Fed sees a stronger labor market, it won’t have much concern about tightening,” Christensen said.

The dollar index, which measures the greenback against six major peers, was down 0.2% at 105.75 after falling 1.1% on Wednesday.

The Fed raised interest rates to levels not seen since 2008, but slightly cooler-than-expected U.S. consumer price data raised expectations for a softer pace of increases.

Those hopes saw the dollar index fall 5.2% in November, putting it on track for its worst monthly performance in 12 years.

“After the correction higher in the euro against the dollar in the first half of November, there are not so many buyers in dollars these days,” added Nordea’s Christensen.

The euro held on to gains after an account from the European Central Bank’s October meeting showed policymakers worried inflation may be entrenched, justifying their outlook for more rate hikes.

The single currency was last up 0.2% at $1.0415, while the pound traded at $1.2135, up 0.7% on the day. The pound gained 1.4% on Wednesday after preliminary data on British economic activity beat expectations, although it still showed a contraction was underway.

The euro weakened 0.4% against the Swedish krona after Sweden’s Riksbank raised rates by 75 basis points, in line with expectations in a Reuters poll but signaling that more hikes will be needed to combat rising inflation.

The yuan strengthened after Chinese state media quoted the cabinet as saying Beijing would use a timely cut in the bank’s mandatory minimum ratio (RRR), along with other monetary policy tools, to keep liquidity reasonably high.

Meanwhile, billionaire investor Bill Ackman said he was betting the Hong Kong dollar would fall and that its peg to the US dollar could break.

Since May, the Hong Kong dollar has held near the weaker end of the range, although it has rallied a bit in recent weeks as markets begin to appreciate the peak in US rates. It was last seen at 7.8102 per dollar.

The Japanese yen was one of the strongest among the majors, climbing 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 Klamann and Marguerita Choy)

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