Dollar down as Fed’s rate-hike cycle seen ending

The dollar fell on Thursday after the Federal Reserve delivered what some expected to be its last rate hike, while market focus shifted across the Atlantic to the European Central Bank’s (ECB) rate decision later in the day.

The Fed on Wednesday raised interest rates by a quarter of a percentage point, as expected, marking the central bank’s 11th rate increase in its last 12 meetings.

While Fed Chair Jerome Powell left the door open to another hike in September, traders were unconvinced, sending the US dollar sliding in Asia trade on Thursday.

That pushed the risk-sensitive Australian and New Zealand dollars higher, as the prospect that the global monetary tightening cycle could soon be ending boosted sentiment.

The New Zealand dollar was last 0.8% higher at $0.6259, having earlier surged more than 1% to a one-week high of $0.6274.

The Aussie similarly jumped nearly 1% to a one-week top of $0.68195.

“Of course, the Fed did not close the door to further rate hikes, but it seems like in the Asian session, people took a firm conviction that this could be the last hike for the Fed,” said Bank of Singapore currency strategist Moh Siong Sim.

The dollar fell 0.3% to 100.81, while sterling touched a one-week high of $1.29735 earlier in the session.

The British pound was last 0.19% higher at $1.2964.

“(The) US is closer to the end of the hiking cycle than its peers. A dovish pivot from the Fed will likely exert a downward pressure on the US dollar in the medium term,” said Emin Hajiyev, senior economist at Insight Investment.

The ECB comes under the spotlight next, with investors expecting the central bank to similarly raise rates by 25 bps at the conclusion of its monetary policy meeting later on Thursday, with focus on its forward guidance.

Ahead of the decision, the euro gained 0.18% to $1.11035.

“The ECB looks all but certain to hike the deposit rate by 25 bps… This should not surprise market as it has been largely telegraphed,” said Nadia Gharbi, senior economist at Pictet Wealth Management.

“The real debate is whether the ECB will hike again in September (and beyond).”

Elsewhere, the Japanese yen remained under pressure, though was last roughly 0.3% higher against the US dollar at 139.84.

The Bank of Japan (BOJ) announces its monetary policy decision on Friday, and is seen maintaining its ultra-loose policy stance.

“Changes to the policy rate and an end to quantitative easing still are far off based on the communication of the BOJ,” said Gregor Hirt, global chief investment officer for multi asset at Allianz Global Investors.

“We would thus expect the accommodative policy to continue for the time being.”

Against the weaker dollar, the yuan edged higher in both the onshore and offshore markets, with the offshore yuan rising nearly 0.5% to a peak of 7.1170 per dollar, its strongest level since mid-June.

China’s industrial profits extended this year’s double-digit pace of declines into a sixth month, data on Thursday showed, bolstering the case for further policy support to aid the economy.