Dollar sell-off pauses, yen wobbles as traders weigh Fed outlook

2023-11-22 14:25

By Brigid Riley TOKYO The dollar stabilised a little on Wednesday but remained near 2-1/2-month lows against a

Dollar sell-off pauses, yen wobbles as traders weigh Fed outlook

By Brigid Riley

TOKYO The dollar stabilised a little on Wednesday but remained near 2-1/2-month lows against a basket of currencies after minutes of the Federal Reserve's last meeting did little to dislodge expectations that its rate-hike cycle was over.

The Fed minutes showed the central bank would proceed "carefully" and that "all participants judged it appropriate to maintain" the current rate setting.

Fed officials agreed they would only raise interest rates if progress in controlling inflation faltered, reiterating recent comments by policymakers that left the door open for more tightening even as markets have moved to price in cuts from early next year.

"The release of the FOMC November minute did little to sway the opinion that the Fed have reached their terminal rate," said Matt Simpson, senior market analyst at City Index.

Markets are all but certain that the Fed will hold rates at their December meeting, while pricing in about a 30% chance of a rate cut as early as March, according to CME's FedWatch Tool.

The dollar index, which measure the greenback against a basket of currencies, was 0.12% higher at 103.65, pulling away slightly from the 2-1/2-month low of 103.17 it touched on Tuesday. The index is down about 3% so far in November and on course for its worst monthly performance in a year.

The euro last sat at $1.0908 after rising to its highest against the dollar since mid-August to $1.09655 on Tuesday.

Sterling was mostly flat at $1.2527, not far from a two-month high of $1.2558 touched overnight.

"We’re seeing signs that the dollar bearish move is running out of steam" and could be "due to bounce," Simpson said, adding that the greenback has a tendency to weaken and then strengthen around the time of the U.S. Thanksgiving holiday, which happens on Thursday.

Christopher Wong, currency strategist at OCBC, said market participants were eager to take money off the table before liquidity fizzles out.

U.S. Treasury yields, which have buoyed the dollar, have also tumbled from multi-year highs hit in October as investors ramp up bets that the Fed is done hiking rates following a slowdown in U.S inflation in the same month.

Treasury yields slipped again overnight, with the yield on the benchmark 10-year note last at 4.4178%

The Japanese yen was off 0.16% to 148.64 per dollar as it heads into the European morning, after hitting a two-month high of 147.155 on the dollar on Tuesday.

The Asian currency is up 2% against the greenback in November but is still down 12% for the year.

While speculation that the Bank of Japan could exit from negative interest rates early next year should help stabilise the yen, the Japanese currency still faces strong headwinds.

More than 80% of economists in a Reuters poll said the Bank of Japan will end its negative interest rate policy next year, with more convinced the central bank is getting closer to exiting its controversial monetary settings.

Recent U.S. data have pointed to the resilience of the world's biggest economy, bolstering the Fed's soft landing narrative.

U.S. "growth after the current rebalancing is still expected to outperform, which will support U.S. earnings and yields," said Tony Sycamore, market analyst at IG.

The dollar still holds "a significant yield advantage over the (yen)," he added.

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Currency bid prices at 0548 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar $1.0906 $1.0912 -0.06% +1.77% +1.0923 +1.0905

Dollar/Yen 148.7250 148.3800 +0.20% +13.29% +148.7350 +148.0350

Euro/Yen 162.21 161.90 +0.19% +15.62% +162.2300 +161.6000

Dollar/Swiss 0.8839 0.8838 +0.01% -4.42% +0.8840 +0.8829

Sterling/Dollar 1.2524 1.2538 -0.09% +3.58% +1.2549 +1.2527

Dollar/Canadian 1.3709 1.3702 +0.04% +1.17% +1.3709 +1.3692