Economy

Dollar nurses dip as traders hint at interest rate peaks

Dollar nurses dip as traders hint at interest rate peaks

Written by Tom Westbrook

SYDNEY (Reuters) – The dollar suffered its biggest loss in years on Wednesday after a downbeat surprise by Australia’s central bank prompted investors to question whether global interest rates were on the horizon.

Overnight the US dollar fell by about 1.6% against the euro to test parity at $0.9999 and 1.3% against the British pound at $1.1490. It fell 1.3 percent, its biggest drop since the wild epidemic market in March 2020. It has fallen more than 4 percent since hitting a 20-year peak last week.

The yen and yen were a bit behind, as was the New Zealand dollar with markets worried that the Reserve Bank of New Zealand might also provide a downbeat surprise later in the day. This kept the morning moves slight.

On Tuesday, the Reserve Bank of Australia raised interest rates by only 25 basis points when markets were priced in for a chance better than 50 basis points, leading to a spike in bonds and a drop in peak cash rate expectations.

“It indicates a lower peak, come later,” said economist Andrew Tishhurst at Nomura in Sydney. Market prices have returned to the expected peak in Australia’s cash rate from above 4% to just above 3.5%.

โ€œThe Australian dollar has underperformed a little bit, but has underperformed relatively poorly given such a huge movement in cash rate thinking,โ€ Tishhurst added, referring to fragile market sentiment rather than rates that are likely to be a key driver going forward.

The Australian dollar crept slightly higher to $0.6512 on Wednesday. hovering at $0.5736. New Zealand interest rate decision is due at 0100 GMT.

The mood improved significantly in recent days as Britain showed some flexibility in its spending plans that spooked the bond and currency markets.

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Sterling is up more than 11% from record lows a week ago, and the rebound has been beneficial for the Euro. However, analysts are cautious about how much the financial outlook for Britain has changed and how broad the signal for interest rates in Australia really is.

US Federal Reserve Governor Philip Jefferson reiterated overnight that inflation was the number one target of policy makers and that growth would suffer in efforts to bring it down – without considering any kind of an Australian-style slowdown or a shift in interest rates.

US employment data due on Friday will be the next major indicator of the likely path for US rates.

“I think it would be a mistake to assume that Australia’s move is a leading indicator for the Fed,” said Jan Nefrozi, US interest rate analyst at NatWest Markets.

“The Fed’s ‘peak optimism’ novel is one that has seen many false starts – the data will tell us if today represents another such move.”

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Currency display prices at 0007 GMT

Description RIC Last US Close Pct Change YTD Pct High Bid Low Bid

Previous change

session

Euro/Dollar

$0.9987 $0.9988 -0.01% -12.15% +0.9987 +0.9980

dollar / yen

143.7750 144.0950 -0.16% + 0.00% + 144.1950 + 143.8700

euro / yen

143.59 143.91 -0.22% + 10.18% + 144.0000 + 143.5200

dollar / swiss

0.9786 0.9797 -0.08% + 0.00% +0.9797 +0.9789

Pound sterling / dollar

1.1455 1.1477 -0.21% -15.32% +1.1486 +1.1449

Canadian Dollar

1.3511 1.3508 + 0.04% + 0.00% +1.3526 +1.3505

Australian dollar / dollar

0.6515 0.6502 + 0.20% -10.37% + 0.6515 + 0.6500

NZ

USD/USD 0.5737 0.5732 + 0.07% -16.20% +0.5737 +0.5728

all spots

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