By Samuel Indyk
LONDON, Nov 24 (Reuters) – The U.S. dollar extended losses on Thursday after minutes from the Federal Reserve’s November meeting backed the idea that the central bank would cut and raise rates in small steps from of its December meeting.
The much-anticipated reading from the Nov. 1-2 meeting showed officials were largely content to now be able to move forward in smaller steps, with a likely 50bp rate hike next month following four consecutive 75bp increases. basic.
“The Fed will be happy to move rates 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 always feel that it needs to do more to bring inflation down.
“As long as the Fed sees a stronger labor market, they don’t have a big concern about tightening,” Christensen said.
The dollar index, which measures the greenback against six major peers, fell 0.2% to 105.75, after falling 1.1% on Wednesday.
The Fed raised interest rates to levels not seen since 2008, but slightly weaker-than-expected consumer price data in the United States fueled expectations of a more moderate pace of hikes.
Those hopes saw the dollar index slip 5.2% in November, putting it on course for its worst monthly performance in 12 years.
“There aren’t many dollar buyers these days after the euro-dollar corrected higher in the first half of November,” Nordea’s Christensen added.
The euro held onto its gains after minutes from the European Central Bank’s October meeting showed policymakers feared inflation was taking root, justifying their outlook for further rate hikes.
The single currency last rose 0.2% to $1.0415, while the pound traded at $1.2135, up 0.7% on the day. The pound rebounded 1.4% on Wednesday after preliminary data on Britain’s economic activity beat expectations, although it still showed a contraction was underway.
The euro weakened 0.4% against the Swedish krona after Sweden’s Riksbank raised rates by 75 basis points, in line with Reuters poll expectations, but signaled further hikes would be needed to fight against soaring inflation.
The yuan strengthened after Chinese state media quoted the firm as saying that Beijing will use timely bank reserve requirement ratio (RRR) cuts, along with other monetary policy tools, to maintain liquidity reasonably sufficient.
Meanwhile, billionaire investor Bill Ackman said he was betting the Hong Kong dollar would fall and its peg to the US dollar could break.
Since May, the Hong Kong dollar has been stuck near the weaker end of its range, although it has rallied slightly in recent weeks as markets begin to price in a spike in US rates. It was last at 7.8102 to the dollar.
The Japanese yen was one of the strongest risers among major currencies, climbing 0.9% against the dollar to 138.285.
US markets will be closed Thursday for Thanksgiving and liquidity will likely be thinner than usual.
(Reporting by Samuel Indyk in London and Ankur Banerjee in Singapore; Editing by Edwina Gibbs, Edmund Klamann and Marguerita Choy)