Dollar surges to 3-week high on Fed minutes

SINGAPORE HONG KONG The dollar soared to a three-week high on Thursday after minutes from the Federal Reserve'sFederal Reserve's July meeting pointed out that interest rates in the U.S. will stay higher for longer to bring down inflation.

The pound dropped below the $1.2 level to a three-week low, thanks to the stronger dollar, and was suffering from red hot inflation figures released the day before, which reinforced fears about the U.K. growth outlook.

The pound was down by 0.3 per cent at $1.2015, while the euro dropped 0.2 per cent to $1.0157 and the dollar climbed a bit to trade at 135.25 yen, just off its overnight one week high.

The dollar index was up 0.22 per cent at 106.89, its highest since July.

The dollar is in a strong uptrend, according to Matt Simpson, senior analyst at the brokerage City Index in Brisbane, who said it has now paused a weeks-long pullback.

In some ways, bulls are looking to step back in and I think the Fed minutes gave them a reason to do so. Minutes released on Wednesday showed that Fed officials saw little evidence that U.S. inflation pressures were easing. The minutes flagged a slowdown in the pace of hikes but not a switch to cuts in 2023 that traders until recently had priced in to interest-rate futures.

Traders expect rates to hit a peak around 3.7 per cent by March and to be around there until later in 2023, as they see a 40 per cent chance of a third consecutive 75 basis point hike in September.

The dollar gained most against the Antipodeans in Asian trade, especially the Aussie, which was dragged down as weaker than expected wage growth weighed on Australia's rates outlook.

The Australian dollar fell to a one-week low of $0.6899 before falling back to $0.6916, down 0.3 per cent, after noisy labour data showed falls in both employment and the jobless rate.

The New Zealand dollar was last down 0.35 per cent at $0.6258 and was pinned to Wednesday lows.

China's yuan continued to struggle as weak consumption, low confidence, anaemic credit growth, a property crisis and restrictive COVID 19 policies cast a long shadow on the prospects for the world's second-largest economy.

The yuan fell by 0.2 per cent to 6.793 per dollar.

It dropped below its 200 day moving average against the euro.