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U.S. dollar hits lowest in week as investors gauge Fed policy, euro rises

Yen left behind as Fed begins hiking
Yen left behind as Fed begins hiking   -   Copyright  Thomson Reuters 2022
By Reuters

By Caroline Valetkevitch

NEWYORK – The U.S. dollar fell on Thursday and hit its lowest in a week as investors digested the Federal Reserve’s monetary policy outlook a day after the U.S. central bank’s expected rate hike, while the euro rose as investors kept an eye on Russia-Ukraine talks.

The Fed’s monetary policy turned hawkish with its quarter-percentage-point rate increase Wednesday and projection that the federal funds rate would reach a range of 1.75% to 2% by the end of 2022 and 2.8% next year, but the central bank did not deliver a tougher surprise that some investors might have been expecting.

“The strongest message yesterday was that the Fed was going to hike and it was primarily concerned with elevated inflation pressures,” Bipan Rai, North American head of foreign exchange strategy at CIBC Capital Markets in Toronto, said.

“The market is kind of taking the bet that the Fed has this view now but that could shift in the coming quarters, and there’s a lot already priced in to the short-term interest rate markets for the Fed this year. Some of that is being pulled back, and that’s one of the reasons why the dollar has come under pressure.”

The dollar index, which measures the greenback’s strength against six trading currencies, was down 0.5% at 97.980 and hit its lowest in a week. The index remains up 2.4% for the year so far.

The euro was up 0.5% at $1.1095 and touched its highest since early March. Officials from both sides of the Ukraine-Russia conflict met again for peace talks, but they said their positions remained far apart.

The Russian rouble rose in Moscow trading and was slightly weaker offshore. On foreign exchanges, rouble bids were indicated at 96 per dollar and traded at 104, down 3.9%.

The commodity-sensitive Australian dollar was up 1.2% against the U.S. dollar.

Oil prices climbed 8% on Thursday with a renewed focus on supply shortages in coming weeks due to sanctions on Russia.[O/R]

The euro rose against the British pound and hit its highest since early February. The Bank of England raised interest rates as expected, but softened its language on the need for further increases.

Money markets are pricing less than 120 bps of rate hikes by year-end. [IRPR]

The dollar was down 0.1% against the Japanese yen . Earlier Thursday, Bank of Japan Governor Haruhiko Kuroda said Japan’s inflation was unlikely to hit a central bank target of 2%, even accounting for rising energy costs, making the case for keeping monetary policy ultra-easy.

Currency bid prices at 4:13PM (2013 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index

97.9800 98.4840 -0.49% 2.422% +98.4990 +97.7240

Euro/Dollar

$1.1095 $1.1037 +0.54% -2.39% +$1.1138 +$1.1008

Dollar/Yen

118.6550 118.7550 -0.07% +3.08% +119.0200 +118.3700

Euro/Yen

131.65 131.01 +0.49% +1.02% +131.9000 +130.7300

Dollar/Swiss

0.9372 0.9407 -0.39% +2.73% +0.9429 +0.9336

Sterling/Dollar

$1.3152 $1.3146 +0.05% -2.75% +$1.3210 +$1.3088

Dollar/Canadian

1.2619 1.2675 -0.43% -0.19% +1.2698 +1.2618

Aussie/Dollar

$0.7378 $0.7290 +1.23% +1.52% +$0.7393 +$0.7283

Euro/Swiss

1.0399 1.0378 +0.20% +0.29% +1.0402 +1.0361

Euro/Sterling

0.8435 0.8392 +0.51% +0.42% +0.8458 +0.8368

NZ

Dollar/Dollar $0.6884 $0.6842 +0.64% +0.60% +$0.6899 +$0.6829

Dollar/Norway

8.7865 8.8905 -1.20% -0.29% +8.9255 +8.7830

Euro/Norway

9.7543 9.8126 -0.59% -2.59% +9.8483 +9.7426

Dollar/Sweden

9.4051 9.4051 +0.55% +4.29% +9.4724 +9.3674

Euro/Sweden

10.4373 10.3802 +0.55% +1.98% +10.4579 +10.3820