FOREX dollar extends losses as Fed minutes signal slower rate hikes

(Updates prices)

By Samuel Indyk

LONDON, Nov 24 (Reuters) – The U.S. dollar extended losses on Thursday after minutes from the Federal Reserve’s November meeting supported the view that the central bank would cut rates and raise interest rates in smaller increments from its December meeting.

The long-awaited reading of the meeting 1.-2. November showed that officials were largely satisfied that they could now move in smaller increments, with a 50-basis-point rate hike likely next month after four consecutive 75-basis-point hikes.

“The Fed would like to move interest rates by 50 basis points in December and 25 basis points from the first meeting next year,” said Niels Christensen, chief analyst at Nordea, noting that the Fed will still feel it needs to do more to bring down inflation.

“As long as the Fed sees a stronger labor market, they don̵[ads1]7;t have much concern about tightening,” Christensen said.

The dollar index, which measures the greenback against six major companies, fell 0.2% to 105.75, after falling 1.1% on Wednesday.

The Fed has taken interest rates to levels not seen since 2008, but slightly cooler than expected US consumer price data has fueled expectations of a more moderate pace of recovery.

Those hopes have sent the dollar index down 5.2% in November, putting it on track for its worst monthly performance in 12 years.

“There are not so many dollar buyers these days after the correction higher in the euro-dollar in the first half of November,” Nordeas Christensen added.

The euro rallied after the report from the European Central Bank’s October meeting showed policymakers feared inflation may be taking hold, justifying their outlook for further rate hikes.

The single currency was last up 0.2% at $1.0415, while sterling traded at $1.2135, up 0.7% on the day. The pound rose 1.4% on Wednesday after preliminary UK economic activity data beat expectations, although it still showed a slowdown was on the way.

The euro weakened 0.4% against the Swedish krone after Sweden’s Riksbank raised interest rates by 75 basis points, in line with expectations in a Reuters poll, but signaled that further increases would be needed to combat rising inflation.

The yuan strengthened after Chinese state media quoted the government as saying Beijing will use timely cuts in banks’ reserve requirement ratios (RRRs), along with other monetary policy tools, to keep liquidity reasonably good.

Meanwhile, billionaire investor Bill Ackman said he is betting the Hong Kong dollar will fall and that its peg to the US dollar could break.

Since May, the Hong Kong dollar has been near the weaker end of the band, although it has picked up a bit in recent weeks as markets begin to price a peak in US rates. It was last at 7.8102 per dollar.

The Japanese yen was one of the strongest gainers among major currencies, climbing 0.9% against the dollar to 138.285.

US markets will be closed on Thursday for Thanksgiving and liquidity is likely to be thinner than usual.

(Reporting by Samuel Indyk in London and Ankur Banerjee in Singapore; Editing by Edwina Gibbs, Edmund Klamann and Marguerita Choy)

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