FOREX-Calmer global markets prevail over hawkish Fed and push dollar down
* The dollar breaks its high a month after the Fed
* Norway, British central banks to meet
* Chart: global exchange rates tmsnrt.rs/2RBWI5E
LONDON, Sept. 23 (Reuters) – The dollar slipped from one-month highs on Thursday after the Federal Reserve paved the way for interest rate hikes next year and a rally in the Global market sentiment has encouraged traders to exit the greenback. .
The Fed has headlined a week of central bank meetings that will likely see Norway become the first developed country to raise interest rates since the pandemic. The Fed also took a hawkish tone, setting the stage to start cutting bond purchases in November and at a faster pace than analysts expected.
Nine of the 18 U.S. central bank policymakers predict borrowing costs will have to rise next year, prompting markets to advance the timing of the first rate hike to January 2023.
The dollar and bond yields fell, however, with many believing the Fed had left policy leeway to slow if necessary. There was relative calm on the Chinese front as well, although struggling developer Evergrande is unlikely to hit a bond coupon due on Thursday.
âMuch of the dollar strength we saw on Friday and Monday was due to risk aversion. The Fed raised its median (interest rate) expectations slightly for 2023, but you’re still talking about a rate terminal 1.5% to 1.7%, which is okay, but not a situation where you get an aggressive bid for the dollar, âsaid Peter Kinsella, head of currency strategy at the manager of UBP assets.
“For the dollar to get much stronger, you have to see the front (of the Treasury yield curve) steepen and that’s not happening.”
The spread between five-year and 30-year bonds fell below 100 basis points after the Fed’s statement, the lowest since July 2020 as the 2-year / 10-year curve flattened more than 50bp since the end of March.
As of 7:45 a.m. GMT, the dollar index was at 93.277, down a quarter of a percent on the day and had reached 93.526.
The euro was up to $ 1.1716, a month high, while the pound also rose ahead of a Bank of England meeting that is expected to adopt a hawkish tone.
The Norwegian krone was stable against the dollar and up 0.2% against the euro ahead of a central bank meeting that could see interest rates rise.
The Norwegian krone has risen nearly 5% against the dollar in the past month and is near a three-month high against the euro and analysts say significant gains are unlikely
âThe positioning of the long crown has been significantly rebuilt in recent weeks, so the hurdle is high enough for a positive reaction from the crown,â RBC analyst Adam Cole told clients.
Norges Bank had previously signaled the possibility of a second rate hike this year so markets can focus more on updating forecasts, Cole noted, adding “there is a risk that Norges Bank will revise its policies again. projections on the rise “.
Earlier in Asia, moves were modest with Japan on vacation and the yuan approaching its one-month low against the greenback.
But the Australian dollar strengthened 0.3% against the greenback to $ 0.7261, also benefiting from a strong set of âflashâ PMI numbers.
The IHS Markit Purchasing Managers Index (PMI) showed Australian manufacturing activity at 57.3, rising from 52 in August and allaying fears of the impact of COVID-related lockdowns.
Reporting by Sujata Rao; additional reporting by Tom Westbrook in Singapore; Editing by Angus MacSwan