Dollar Slips As A Boost From Hawkish Fed Commentary Fades

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Dollar edges down as impact of hawkish Fed commentary fades

The dollar slipped against most major currencies on Thursday as the positive impact of hawkish Federal Reserve comments faded and investors waited for more signs on the data front to confirm that more large rate hikes to curb inflation were coming.

Fed officials have continued to push back against the perception that US interest rates were close to peaking. San Francisco Fed President Mary Daly and Minneapolis Fed President Neel Kashkari voiced their determination overnight to rein in high inflation.

But the impact of the hawkish rhetoric on the dollar appeared to be fading, with the currency in a more defensive mood as the London session wore on.

“Yesterday we had some hawkish comments, but maybe that’s not enough and investors will be looking for confirmation from data, especially tomorrow’s payrolls number,” said ING currency strategist Francesco Pesole, referring to US jobs data.

“The effect on the dollar is fading today. Risk sentiment is also more upbeat and it doesn’t look like markets are too worried about the Taiwan situation.”

The dollar index, which measures the greenback against six peers, was at 106.18, down about 0.3 per cent but holding above a one-month low hit earlier this week.

The euro was up 0.25 per cent at $1.0195. The dollar was 0.2 per cent firmer at 134.13 yen.

The dollar’s strength has yet to peak, a Reuters poll released on Thursday showed. Of those polled, 70 per cent thought the dollar was yet to peak in this cycle, even after the dollar index hit its highest level in two decades in July.

Reuters Poll Graphic: US Dollar Outlook

Money markets price in a 50 bps hike at the Fed’s September meeting, and a roughly 44 per cent chance of another massive 75 bps increase. The Fed hiked rates by 75 bps at its meeting in June and July.

Risk currencies also rallied as a bit of nervous tension over House of Representatives Speaker Nancy Pelosi’s visit to Taiwan dissipated.

The Australian dollar was at $0.6968, up 0.6 per cent. New Zealand’s currency was also 0.6 per cent higher at $0.6309


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