By Rae Wee
SINGAPORE, Feb 2 (Reuters) - The dollar slid on Thursday
after the U.S. Federal Reserve said it had turned a corner in
the fight against inflation, giving markets a boost in
confidence that the end of the central bank's rate-hike campaign
was near.
Investors took a dovish cue from Fed Chair Jerome Powell's
remarks on Wednesday that "the disinflationary process has
started" in the world's largest economy, although he also
signalled that interest rates would continue rising and that
cuts were not in the offing.
The Fed's statement on Wednesday, which came after the
conclusion of its two-day policy meeting, where policymakers
agreed to raise rates by 25 basis points, marked the central
bank's first explicit acknowledgment of slowing inflation.
The dollar dived following Powell's remarks. Against a
basket of currencies, the U.S. dollar index fell to a
fresh nine-month low of 100.80 on Wednesday.
It was last 0.07% down at 100.88, having ended more than 1%
lower on Wednesday.
"It was very much a sort of relief ... that there was
nothing there to really seriously challenge the market's
prevailing view," said Ray Attrill, head of FX strategy at
National Australia Bank (NAB).
"(Powell) said that rates are going to have to be
restrictive for some time, but that doesn't dissuade the market
from saying some time might be six months, rather than two
years."
The Aussie surged to an eight-month high of $0.7158
in early Asia trade on Thursday and last bought $0.7150, after
rallying 1.2% in the previous session.
The kiwi similarly hit a fresh eight-month peak of
$0.65365, after jumping more than 1% on Wednesday.
Against the Japanese yen , the dollar slid more
than 0.5% to a session-low of 128.17.
With the Fed out of the way, the stage is set for the
European Central Bank (ECB) and the Bank of England (BoE) to
announce their interest rate decisions later on Thursday.
Expectations are for a 50 bp rise from each.
The euro rose to a roughly 10-month peak of
$1.1034 on Thursday and was last 0.3% higher at $1.1023, while
sterling moved up 0.14% to $1.2392.
"The risk is that we get a hawkish 50 from the ECB and a
dovish 50 from the Bank of England. That might create some
volatility," said NAB's Attrill.
Euro zone inflation eased for the third straight month in
January, data on Wednesday showed. But any relief for the ECB
may be limited, as underlying price growth held steady and
concerns have already been raised about the reliability of the
figures.
"In Europe, the inflation pressure remains very high despite
the drop in energy prices," said Tareck Horchani, head of prime
brokerage dealing at Maybank Securities.
"We should see (the) ECB continue hiking interest rates
until at least the end of Q1 2023."
In the United States, Friday's nonfarm payrolls report will
be the next test of the Fed's fight against inflation, though
official statistics on Wednesday showed that job openings had
unexpectedly risen in December, pointing to a still-tight labour
market.
Markets are now expecting the Fed funds rate to peak just
under 4.9% by June, compared with earlier expectations of a peak
of just below 5%. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
World FX rates ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Reporting by Rae Wee; Editing by Stephen Coates and Bradley
Perrett)
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