SINGAPORE The dollar was on the front foot on Thursday after minutes from the Federal Reserve'sFederal Reserve's July meeting pointed out that U.S. interest rates were going to stay higher for longer to bring down inflation.
The dollar gained most against the Antipodeans, particularly the Aussie, which was dragged down as weaker than expected wage growth weighed on Australia's rates outlook.
The Australian dollar fell 1.2 per cent to a one-week low of $0.6912 on Wednesday. It was just above that at $0.6922 in the Asia session, with little reaction to the labor data showing falls in both employment and the jobless rate.
The New Zealand dollar was down 0.2 per cent at $0.6267 and was pinned to Wednesday lows. The dollar was barely changed on the euro and sterling and was steady on the yen.
Matt Simpson, a senior analyst at the brokerage City Index in Brisbane, said the dollar is in a strong uptrend and that it has 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. The dollar was up 0.6 per cent on the yen overnight and held at 135.06 yen on Thursday. The euro bought $1.0165 and the dollar index rose by 0.1 per cent to 106.740.
The minutes showed that Fed officials saw little evidence that the 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 had previously priced in to interest-rate futures.
Once a sufficiently restrictive level has been reached, they are going to stick to that level for some time, according to a note from Rabobank strategist Philip Marey.
This is in contrast to the early Fed pivot that the markets have been pricing in. Traders expect rates to hit a peak around 3.7 per cent by March, and to hover around there until later in 2023, given the 39 per cent chance of a third consecutive 75 basis point hike in September.
The yuan and the pound in China were beset by economic worries.
A long shadow over China's prospects has been cast by weak consumption, low confidence, anaemic credit growth, a property crisis and restrictive COVID 19 policies.
The yuan fell by 0.2 per cent to 6.7928 per dollar.
Britain is staring at soaring inflation and interest rates. Consumer prices rose by 10.1 per cent in July, the highest since 1982. After blipping higher, growth fears dragged sterling lower and it was last at $1.2040.
It dropped below its 200 day moving average against the euro.
Is sterling going to get weaker now, ahead of the inevitable recession? Or will sterling hold on to until rates peak and the economic disaster can dominate, said Kit Juckes, strategist at Societete Generale.
He said that he is confident that we will make a new cycle low this year.