The U.S. dollar was broadly weaker on Thursday as investors, buoyed by the prospect of slower interest rate hikes from the Federal Reserve, placed bets on riskier assets.
The eagerly awaited results of the Fed’s November 1-2 meeting showed that officials were largely satisfied that they could now move in smaller steps.
“I think it’s almost certain now that we’ll see the FOMC slow the pace of tightening from December,” said Carol Kong, currency strategist at the Commonwealth Bank of Australia (CBA).
The dollar index, which measures the greenback against six major peers, was down 0.066% at 105.830 after falling 1% overnight.
This month, the Fed raised its key rate by three-quarters of a percentage point for the fourth time in a row to tame suffocatingly high inflation.
But slightly cooler-than-expected US consumer price data fueled hopes for more moderate growth. Those hopes sent the dollar index down 5.1% in November, its worst monthly performance in 12 years.
Citi strategists said there was still considerable uncertainty about how high rates could rise, despite the consensus that rates would rise more slowly.
The minutes also revealed renewed debate at the Fed over the risks that rapid policy tightening could pose to economic growth and financial stability. At the same time, policymakers have acknowledged that there has been little progress in the fight against inflation and that rates still need to be raised.
U.S. business activity fell for a fifth straight month in November, data showed on Wednesday, and new orders fell to their lowest level in 2-1/2 years as higher interest rates slowed demand.
However, CBA’s Kong cautioned that markets are overly optimistic about a possible imminent end to the tightening cycle, and noted that there was still strong support for the US dollar due to China’s zero-spreading of COVID policy.
A surge in coronavirus cases has prompted Chinese cities to impose more restrictions, heightening investor concerns about the economy and putting a lid on risk appetite.
The Australian dollar rose 0.25% against the greenback to $0.675, while the kiwi rose 0.26% to $0.625.
The euro rose 0.23% to $1.0419, while the pound sterling last traded at $1.2083, up 0.26% on the day. The pound rose 1.4% overnight after preliminary data on UK economic activity beat expectations, although it still indicated contraction was underway.
The Japanese yen strengthened by 0.54% against the dollar to 138.84 per dollar.
US markets will be closed on Thursday for Thanksgiving, and liquidity is likely to be less than usual.
