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

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

Trading was thin overnight due to the Thanksgiving holiday in the United States, although most currencies extended their gains against the soft greenback before giving them up slightly in early Asian trade.

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

The Japanese yen jumped roughly 0.7% overnight, and last bought 138.60 per dollar.

Minutes from the Fed’s November meeting released earlier this week showed that “a large majority” of policymakers agreed that it would be “preferred soon” to slow the pace of interest rate hikes – a statement that sent the greenback soaring.

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The Fed’s aggressive rate hikes and market expectations of how high the central bank can take them have been big drivers of the dollar’s 10% surge this year.

“We still have a third day in a row of positive risk sentiment … I think that’s keeping the US dollar subdued pretty much 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 the three-month trough of 105.30 hit last week. This led to a weekly loss of almost 1%.

Also aiding risk sentiment slightly is the survey that shows that German business morale rose further than expected in November.

European Central Bank (ECB) policymakers fear that inflation may become entrenched in the euro zone, the account of the October meeting showed overnight. However, the market is now expecting a more modest, 50 bp move in the December meeting. read more

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

“We have the euro zone inflation figures next week, so I think they will be a big test for market prices … ,” Attrill said.

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

The New Zealand dollar was 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, the market is also monitoring the upcoming cut in the bank’s reserve requirement ratio (RRR).

China will use a timely cut in banks’ RRR, along with other monetary policy tools, to keep liquidity reasonably sufficient, the state media quoted the cabinet meeting as saying.

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

“That said, the RRR is likely to have only a limited positive impact, as we believe the real obstacle to the economy lies in local officials’ more diligent implementation of the Covid restrictions rather than insufficient loan funds.”

China’s 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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