The dollar weakens as the cautious Fed leads to rethink rising rates

The dollar weakened against other major currencies on Thursday, as markets had understood the comment from Federal Reserve Chairman Jerome Powell that US interest rates were just beneath it. from the neutral position, indicating that a three-year rate hike cycle is coming to an end.

The dollar index, which measures the value of the greenback versus a basket of other major currencies, declined 0.2% to 96.64, its lowest level in almost a week.

Powell surprised markets on Wednesday by noting that the key rate, from 2 to 2.25%, is now "just below" the wide range of estimates of the neutral, which was 2.5 to 3.5% in September.

This marks a break from the comments made in October when Powell said the rates were "far from being neutral at this point".

"It is clear that Powell's comments on the neutral interest rate have changed the market's expectations regarding the Fed's policy," said Jane Foley, currency strategist at Rabobank in London.

"It's a positive factor for the dollar and positive for risk appetite."

This trend has been reflected in the money markets, where expectations of Fed rate hikes have been reduced to about 47 basis points over the next year, up from 52 basis points earlier this week.

The dollar was also weaker overall and it was down 0.4% to 113.25 yen and a quarter percent lower against the euro.

The euro reached 1.1394 USD, after touching 1.13975 USD, its highest level for almost a week.

US 10-year Treasury yields hit their lowest level since September at 3.013% on Thursday, adding to the bearish dollar sentiment.

Attention is now turning to the publication at this meeting of the October US PCE price index, the Fed's preferred inflation gauge, for further indications of the outlook for the US rates. American interests. The minutes of the November Fed meeting are also released later in the day.

Analysts said the minutes were likely to reaffirm the market's expectations for a rate hike in December, but that they would not likely have a significant impact as the market must now determine whether Fed will end the tightening cycle next year.

The dollar's weakness following Powell's comments is likely to be limited, given the caution that preceded the G20 summit on Friday and Saturday, when US President Donald Trump and Chinese President Xi Jinping are expected to discuss controversial trade issues.

Rodrigo Catril, NAB's currency strategist, said safe-haven buying could return if there were no signs of a truce between Washington and Beijing during the G20 summit.

Elsewhere, the British pound climbed to 1.2830 USD, but was weakened by 0.2% against the euro at 88.81 pence, reflecting the uncertainty as to the ability to British Prime Minister Theresa May to get her Brexit deal approved by a torn parliament.

The Bank of England warned on Wednesday that its country was likely to be hit harder by the global financial crisis that was raging ten years ago if the European Union left the European Union so badly. "Messy", which would include a 25% crash in the country. value of the pound.

NOPE