Dollar takes a breather from rally that lifted 1 year high

Dollar takes a breather from rally that lifted 1 year high

The dollar touched its lower against major peers on Thursday, taking a breather from a rally that had lifted it to a 1 year high powered by expectation for quicker Federal Reserve interest rate hikes.

The dollar index, which measures the currency against six rivals, was around flat at 94.016, after dropping 0.53% on Wednesday the highest since Aug. 23.

The index reached 94.563 on Tuesday, its highest since late September 2020, after increasing almost 3% since early last month's launch.

The dollar pulled back even after minutes of the Federal Open Market Committee's September meeting confirmed tapering of stimulus is all but certain to start this year and showed a growing number of policymakers worried that high inflation could persist.

A Labor Department report showed U.S. consumer prices rose solidly in September and are likely to rise further amid a surge in energy prices, potentially forcing the Fed to act sooner to normalise policy.

The U.S. 2015 2005-year, 5-year-forward breakeven rate, one of the more closely followed gauges of long-term inflation expectations, surged to its highest level in seven years at 2.59% overnight.

Most Fed officials, including Chair Jerome Powell, have so far contended that price pressures will be transitory.

Money markets are currently pricing about 50% odds of a first 25 basis point rate hike in July.

The USD reaction may be an example of 'buy the rumour, sell the fact" Joseph Capurso wrote a script to a client in a CB Australia strategist.

We consider the assumption of a transitory spike in inflation by the FOMC as wrong. A more aggressive tightening cycle will support USD in our view. The dollar jumped to 113.37 yen but fell overnight from the three-year high of 113,80 Yen.

The euro was mostly flat to $1.1599 with its first overnight low since Wednesday, but this is the first time that the euro has touched $1.1601 since oct. 5.

Sterling was moved to $1.3665, holding Wednesday's 0.55% advance and near its highest level in this month.