Dollar headed for weekly loss as investors brace for slower Fed hikes

SINGAPORE, Nov 25 (Reuters) – The dollar stood near a three-month low and was on track for a weekly loss on Friday, as the prospect of the Federal Reserve easing monetary policy tightening once December dominated in the minds of investors and kept the mood buoyant.

Trading was thin overnight due to the Thanksgiving holiday in the United States, though most currencies extended their gains against the weaker greenback before paring them back in early Asian trade.

Sterling rose more than 0.5% overnight and last stood at $1.21125, close to the more than three-month high of $1.2153 hit in the previous session and on track for a nearly 2% weekly gain.

The Japanese yen jumped nearly 0.7% overnight, and was last bought at 138.60 per dollar.

Minutes from the Fed’s November meeting released earlier this week showed that a “substantial majority” of policymakers agreed that it would “probably be appropriate” to slow the pace of interest rate hikes. — remarks that caused the greenback to crash.

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The Fed’s aggressive interest rate hikes and market expectations of how much higher the central bank might take them are a big driver of the dollar’s 10% surge this year.

“We’ve had a third straight day of positive risk sentiment… I think that’s keeping the US dollar relatively weak across the board,” said Ray Attrill, head of FX strategy at National Australia Bank .

Against a basket of currencies, the US dollar index stood at 105.94, testing its three-month trough at 105.30 hit last week. This is heading for a weekly loss of about 1%.

Also helping risk sentiment somewhat was a survey that showed German business morale rose more than expected in November.

European Central Bank (ECB) policymakers fear inflation could be buried in the euro zone, accounts of its October meeting showed overnight. However, markets are now expecting a more modest, 50 bp move at the December meeting. read more

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The euro was 0.06% lower at $1.04045, but held close to $1.0481, its highest level in more than four months hit last week.

“We have the euro zone inflation numbers next week, so I think they will be a big test in pricing the market … if we have another upside surprise on that, I think That will put 75 bp back on the agenda,” Attrill said.

The Aussie fell 0.17% to $0.6753, after rising more than 0.4% overnight. The kiwi fell 0.19% to $0.6252, but that was not far from its three-month peak hit in the previous session.

The New Zealand dollar is headed for a weekly gain of more than 1.5%, helped by the Reserve Bank of New Zealand’s 75 bp rate hike earlier in the week and its hawkish rate outlook. read more

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In China, markets are also closely watching the upcoming reduction in banks’ reserve requirement ratio (RRR).

China will use timely cuts in banks’ RRR, among other monetary policy tools, to keep liquidity adequate, state media cited a cabinet meeting as saying.

“We believe it is likely that the PBoC (People’s Bank of China) may cut the RRR by 25 bp for most banks in the next few weeks (or even days),” analysts at Nomura said.

“That said, the RRR is likely to have only a limited positive impact, as we believe that the real obstacle for the economy lies in more diligent enforcement by local officials of the Covid restrictions rather than not sufficient funds to lend.”

The Chinese offshore yuan was last 0.1% lower at 7.1759 per dollar.

Reporting by Rae Wee; Editing by Ana Nicolaci da Costa

Our Standards: The Thomson Reuters Trust Principles.

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