Dollar Slips as Traders See US Rates Peaking

Dollar Falls as Risk-Sensitive Asian Currencies Gain

The dollar experienced a broad decline on Thursday, with risk-sensitive Asian currencies leading the gains. This comes as investors celebrate the likelihood of U.S. interest rates peaking after the Federal Reserve decided to keep them on hold. This positive sentiment has also boosted equity markets and risk-sensitive currencies.

Focus Turns to Bank of England as Sterling Gains

Investors are now shifting their attention to the Bank of England, which is expected to keep rates at high levels. This anticipation has caused sterling to creep 0.3% higher against the dollar, reaching $1.2180. Additionally, the euro has risen 0.2% to $1.0597.

Fed Chair Signals Balanced Approach to Rate Hikes

Federal Reserve Chair Jerome Powell has left the door open to another rate hike but has emphasized the balanced risks of doing too much or too little. With the funds rate target ceiling at a 22-year high of 5.5%, the likelihood of a rate increase in December remains below 20%. This has resulted in a decline in ten-year Treasury yields and a rally in equities.

Australian and New Zealand Dollars Soar

The Australian dollar surged 0.9% on Wednesday and an additional 0.7% on Thursday to reach a three-week high of $0.6439. Similarly, the New Zealand dollar reached a two-week peak of $0.5896. Meanwhile, Bitcoin, often seen as a proxy for risk-taking, broke above $35,000 for the first time since May 2022.

Yen Struggles as Bank of Japan Maintains Rates

The yen has been struggling to gain traction, even with the Bank of Japan’s recent relaxation of its yield curve control policy. The large gap between Japanese and U.S. interest rates is expected to continue weighing on the exchange rate. Over the past two years, the yen has weakened by more than 20% against the dollar.

Bank of England Likely to Keep Rates on Hold

The Bank of England is expected to maintain its rates at a 15-year high, with markets pricing in almost a 90% chance of no rate cut until September 2024. This conservative approach is driven by the UK’s inflation risks. As a result, sterling may gain ground against the euro.

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