SINGAPORE, Jan 5 (Reuters) – The dollar rose on Thursday but struggled for bigger gains as the boost from a still-tight Federal Reserve was tempered by growing investor appetite for riskier assets, fueled by China’s reopening.
Minutes of the Fed’s December monetary policy meeting, released overnight, showed that while officials agreed the central bank should slow the pace of aggressive rate hikes, they remained focused on containing inflation and worried about each “Misperceptions” in the financial markets caused their commitment to wane.
Minneapolis Fed President Neel Kashkari also said on Wednesday that he sees the Fed’s target interest rate at 5.4%, higher than current market expectations of just under 5%.
The greenback gained some ground on Thursday after a muted reaction to the Fed’s hawkish rhetoric overnight, with sterling last 0.16% lower at $1.2039 after rising 0.76% in the previous session was.
The euro held steady at $1.0605 after gaining more than 0.5% overnight.
Against a basket of currencies, the US dollar index rose 0.06% to 104.27 after falling 0.5% on Wednesday.
“The logs have mostly been in line with expectations – no cuts are expected (this year), that’s what the dot plot has already priced in,” said Christopher Wong, a currency strategist at OCBC.
“Long story short, markets are not buying the Fed’s dot plot.”
The effects of last year’s aggressive Fed rate hikes were already being felt in the US economy, with a survey by the Institute for Supply Management (ISM) showing manufacturing activity contracted again in December. Still, the country’s job market remains tight as US job vacancies fell less-than-expected in November.
“The message is still that the job market remains in pretty bad shape,” said Ray Attrill, head of FX strategy at National Australia Bank (NAB).
The Australian dollar was last down 0.39% at $0.6812, after rising 1.7% overnight after news that China’s state planner allowed three central government-backed utilities and its top steelmaker to import coal from Australia, marking the first such move since Beijing introduced an unofficial ban on coal trade with Canberra in 2020.
The kiwi fell 0.24% to $0.6276 after rising 0.7% in the previous session.
“The Australian dollar has obviously benefited from the coal story,” NAB’s Attrill said, adding that most other commodity currencies were supported.
In Asia, the Japanese yen firmed to 132.58 per dollar as traders bet that the Bank of Japan (BOJ) could soon completely relinquish its controversial yield curve control.
The BOJ is putting more emphasis on an inflation gauge that excludes fuel costs and is likely to raise its forecasts for the index’s growth in quarterly forecasts due this month, sources told Reuters.
Elsewhere, the Chinese yuan stabilized around a four-month high against the dollar, with the onshore yuan last changing hands at 6.8807 per dollar as the currency continues to be supported by China’s reopening measures.
China will reopen the border with its Hong Kong Special Administrative Region on Sunday for the first time in three years.
Reporting by Rae Wee; Edited by Muralikumar Anantharaman and Sam Holmes
Our standards: The Thomson Reuters Trust Principles.
Comments are closed.