SINGAPORE – The US dollar tumbled on Thursday after the United States central bank said it had turned a corner in the fight against inflation, giving markets a confidence boost that the end of its rate hike campaign is near.
Investors took a dovish cue from Federal Reserve chair Jerome Powell’s remarks on Wednesday that “the disinflationary process has started” in the world’s largest economy, although he also signalled that interest rates would continue rising and that cuts were not in the offing.
The Fed’s statement on Wednesday, which came after the conclusion of its two-day policy meeting where policymakers agreed to raise rates by 25 basis points (bps), marked the central bank’s first explicit acknowledgment of slowing inflation.
The dollar dived following Mr Powell’s remarks and against a basket of currencies, the US dollar index fell to a fresh nine-month low of 100.80.
It was last 0.12 per cent down at 100.83, having fallen more than 1 per cent on Wednesday.
Against the Singdollar, the US currency has fallen by around 0.65 per cent since Tuesday to 1.3063 as at 9.54am on Thursday.
“It was very much a sort of relief… that there was nothing there to really seriously challenge the market’s prevailing view,” said Mr Ray Attrill, head of FX strategy at National Australia Bank.
“(Powell) said that rates are going to have to be restrictive for some time, but that does not dissuade the market from saying some time might be six months, rather than two years.”
Against the Japanese yen, the US dollar fell 0.55 per cent to 128.21.
With the Fed out of the way, the stage is set for the European Central Bank (ECB) and the Bank of England to announce their rate decisions later on Thursday, where expectations are for a 50 bps hike from each.
The euro rose to a roughly 10-month peak of US$1.1034 on Thursday, after gaining 1.2 per cent in the previous session, while sterling was last 0.19 per cent higher at US$1.2399.
“The risk is that we get a hawkish 50 from the ECB and a dovish 50 from the Bank of England – that might create some volatility,” said Mr Attrill.
Euro zone inflation eased for the third straight month in January, data on Wednesday showed, but any relief for the ECB may be limited as underlying price growth held steady and concerns have already been raised about the reliability of the figures.
“I don’t think that is going to influence the messaging from the ECB, which I think is still going to be that (it has) got a lot to do,” Mr Attrill said.
