By Rae Wee
SINGAPORE, May 4 (Reuters) - The dollar fell against
most major currencies on Thursday after the U.S. Federal Reserve
opened the door to a pause in its aggressive tightening cycle,
though markets were buffeted by risk aversion amid a rout in
regional U.S. bank shares.
The Fed on Wednesday raised its benchmark overnight interest
rate by a quarter of a percentage point, as expected, but in
doing so dropped from its policy statement language that it
"anticipates" further rate increases would be needed.
That sent the U.S. dollar broadly lower and Treasury yields
sliding following the decision, with traders taking the comments
as a signal for a peak in U.S. rates had been reached and moved
to price in rate cuts later this year. In thinned Asian trade on Thursday, the British pound rose 0.2% to a roughly 11-month high of $1.25905, while
the euro gained 0.19% to $1.1082, flirting with its
recent one-year peak.
Markets in Japan remain closed for a holiday.
"The most notable part of (the) statement was the section
outlining the outlook for policy going forward, as the FOMC
watered down its language regarding the need for additional
monetary tightening," said Jay Bryson, chief economist at Wells
Fargo.
"Additional tightening may be needed ... but the FOMC does
not appear to be pre-committing to another rate hike on June
14."
The U.S. dollar index was last 0.14% lower at 101.09,
after dropping more than 0.6% in the previous session.
Money markets are now pricing in a slightly more than 10%
chance the Fed will begin cutting rates in June, and expect
roughly 80 basis points of rate cuts through to the end of the
year. Adding to expectations the Fed will soon have to begin
easing monetary conditions were lingering fears of a banking
sector turmoil, intensified by news that PacWest Bancorp is exploring strategic options. The Los Angeles-based
lender said it has been approached by several potential partners
and investors.
Shares of PacWest and several other U.S. regional
lenders had tumbled in after-market trading on Wednesday.
The cautious risk sentiment kept the Japanese yen - a
traditional safe haven in times of market turmoil - well
supported, with the currency pushing up about 0.1% against the
U.S. dollar to 134.56.
It had jumped more than 1% on Wednesday, boosted by a slide
in U.S. Treasury yields.
The risk-sensitive Australian and New Zealand
dollars reversed their earlier losses over the course
of the Asian trade, with both currencies last up about 0.3% each
to $0.6692 and $0.6249, respectively.
"There are a lot of concerns in the U.S. around the banking
sector and the crunch on credit. This is a credit event and that
feeds through to the economy quite quickly," said Jarrod Kerr,
chief economist at Kiwibank.
"So I think central banks, including the Fed, are at or very
near the peak in their cash rates."
The European Central Bank (ECB) comes under the spotlight
next, where expectations are for ECB policymakers to raise
interest rates for the seventh meeting in a row later on
Thursday. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
World FX rates ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Reporting by Rae Wee; Editing by Shri Navaratnam and Lincoln
Feast)
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.