Dollar bounces back after Fed hikes rate cut Reuters

By Rae Wee

SINGAPORE (Reuters) – The U.S. dollar rose broadly on Thursday, recovering from an earlier slump, just after the Federal Reserve’s huge interest rate cut, which was largely welcomed by markets.

The U.S. central bank kicked off its monetary easing cycle on Wednesday with a half-percentage-point cut higher than usual, which Chairman Jerome Powell said was intended to show policymakers’ commitment to keeping rates low of unemployment, now that inflation has eased.

While the size of the move was anticipated by investors, in part because of a flurry of media reports pointing in that direction ahead of the decision, it defied the expectations of economists polled by Reuters, who were leaning toward a 25 basis point cut. .

Still, markets reacted in typical buy-the-rumor, sell-the-fact fashion that kept the greenback on top in early Asian trade. It rebounded from more than a year low against a basket of currencies in the previous session and was last slightly higher at 101.03.

Against the yen, the greenback gained 0.58% to 143.12. The euro was down 0.04% at $1.1113, off a three-week high in the previous session.

“Obviously, (there was) a lot of volatility on the announcement, but in terms of the price action and the information that came out … it’s not that controversial in a way,” said Rodrigo Catril, senior FX strategist at National. Australia Bank (OTC:) (NAB).

“It was pretty close to what the market had priced in, especially in terms of expectations — probably a little more than 100 — but 100 bps of rate cuts this time and another 100 next year, and also a terminal. the rate which is below 3%, so the overall picture… is not significantly different”.

Fed policymakers on Wednesday estimated that the benchmark interest rate would fall another half a percentage point by the end of this year, a full percentage point next year and half a percentage point in 2026, though they said the outlook would be . is necessarily uncertain.

“Our view is that the dollar will depreciate next year. This is a cyclical story, not a structural story,” Eric Robertsen, global head of research and chief strategist at Standard Chartered ( OTC: ) told a roundtable in Singapore on Wednesday.

“We believe the dollar will weaken as the Fed cuts interest rates and the global economy experiences a soft landing, which tends to be a benign scenario that tends to be negative for the dollar.”

Sterling fell 0.11% to $1.3199 after hitting a peak of $1.3298 in the previous session, the strongest level since March 2022.

That came after data on Wednesday showed British inflation held steady in August but accelerated in the services sector closely watched by the Bank of England, bolstering bets the central bank will keep interest rates on hold later in the day.

“When it comes to the Bank of England, clearly those inflation numbers yesterday show that they still have a concern or a problem with inflation, and in particular services inflation is still too high for comfort,” NAB’s Catril said.

“So to expect an easing today because of what the Fed did seems a little too far-fetched.”

Elsewhere, the Australian dollar rose 0.05% against its US counterpart to $0.6768, while the New Zealand dollar advanced 0.04% to $0.6210.

Data released on Thursday showed New Zealand’s economy contracted in the second quarter as activity fell in several industries, although the numbers were better than forecasts.