Forex: Dollar sags as bets build for less hawkish Fed

Applied Energetics

26/10/2022 02:53

By Kevin Buckland
       TOKYO, Oct 26 (Reuters) - The dollar wallowed near a
three-week low versus major peers on Wednesday as more signs of
economic weakness in the United States fanned speculation about
a less hawkish Federal Reserve.
    Sterling hung close to the six-week peak reached on Tuesday
after new British Prime Minister Rishi Sunak pledged to lead the
country out of an economic crisis.
    The euro also remained near a six-week high, trading less
than half a cent from parity with the greenback. The European
Central Bank decided policy on Thursday and is widely expected
to raise rates by 75 basis points.
    The dollar index  =USD  - which measures the currency
against six peers, including sterling, the euro and the yen -
was little changed at 111.01, near the previous session's trough
of 110.75, the lowest level since Oct. 5.
    Data overnight showed that U.S. home prices sank in August
as surging mortgage rates sapped demand, amid recent signs that
Fed rate increases are already working to slow the world's
biggest economy.
    Traders and economists predict another 75 basis point
increase next Wednesday, but the view is growing for a slowing
to half a point in December.  FEDWATCH 
    "I'm still in two minds as to whether we can say we've seen
a peak in the U.S. dollar," but "evidence of a slowdown is
building," said Ray Attrill, head of FX strategy at National
Australia Bank.
    "If the market gets really comfortable with a Fed pivot - if
that's what stepping down to 50 basis points is, and potentially
ending a tightening cycle south of 5% early next year - then it
will be time to call time on U.S. dollar strength, but I'd like
to get through the Fed messaging next week before coming to that
conclusion."
    U.S. long-term Treasury yields continued their descent from
last week's multi-year highs at 4.338%, sliding to 4.0833% in
Tokyo. 
    That put particular pressure on the dollar versus the yen
 JPY=EBS , due to its sensitivity to U.S. rates, with the pair
steady at 147.99 following a 0.7% slide from Tuesday.
    The dollar reached a 32-year top at 151.94 yen on Friday,
but was then beaten back as far as 144.55 amid two bouts of
suspected Bank of Japan intervention either side of the weekend.
    Even so, fundamentals still favor a weaker yen with the BOJ
expected on Friday to keep stimulus settings unchanged, running
counter to monetary tightening by developed-market peers.
    Sterling  GBP=D3  eased 0.21% to $1.1448, but was still
close to Tuesday's high of $1.1500, a level last seen on Sept.
15.
    The euro  EUR=EBS  slipped 0.14% to $0.99545, after jumping
to its highest since Oct. 5 on Tuesday at $0.9995.
    The Australian dollar  AUD=D3  was 0.13% lower at $0.6386,
despite getting a short-lived pop to as high as $0.6412 after
quarterly consumer inflation data narrowly topped economists'
estimates, putting some pressure on the Reserve Bank ahead of a
policy meeting on Tuesday.
    The Aussie reached the highest since Oct. 7 at $0.6412 in
the previous session.
    "The Aussie's weak attempt to rally on above-expectations
core CPI is not a promising sign for its near term prospects,"
said Sean Callow, a senior FX strategist at Westpac.
    "A further pullback in the U.S. dollar seems to be the
Aussie's best chance of sustaining pushes above $0.64.
Otherwise, it's back to trading either side of $0.63."
    Cryptocurrencies were also firm after sharp rallies on
Tuesday amid dollar weakness. Bitcoin  BTC=BTSP  was 0.14%
higher at $20,116 after a 3.9% jump overnight. Ether  ETH=BTSP 
was up 0.45% at $1,466.30, building on Tuesday's 8.7% surge.
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 (Reporting by Kevin Buckland. Editing by Gerry Doyle)