Dollar tumbles on dovish Fed, euro gains as ECB talks down rate cuts
By Karen Brettell and Samuel Indyk
NEW YORK/LONDON (Reuters) -The dollar fell to a two-week low against the euro and a more than four-month low against the Japanese yen in a broad based selloff on Thursday, after the Federal Reserve on Wednesday indicated that rate cuts are likely next year.
The euro and pound, meanwhile, were supported by the European Central Bank and the Bank of England affirming the need to hold rates higher for longer.
Fed Chair Jerome Powell said at Wednesday's Federal Open Market Committee (FOMC) meeting that the tightening of monetary policy is likely over, with a discussion of cuts in borrowing costs coming «into view». The Fed's projections implied 75 basis points of cuts next year, from the current level.
«The Fed was very dovish yesterday,» said Athanasios Vamvakidis, global head G10 FX strategy at BofA Global Research. “The strong consensus… was for a balanced tone by Powell. Instead, Powell doubled-down, with a very dovish tone."
The dollar index was last at 101.95, down 0.89% on the day. It earlier reached 101.76, the lowest since Aug. 10.
Fed funds futures traders are now almost completely pricing in a 25 basis points cut in March, and 150 basis points in rate reductions by Dec. 2024.
“The market has been coming around to the idea that inflation won’t be sticky or problematic over the past six weeks and now central banks are confirming it,” said Adam Button, chief currency analyst at ForexLive in Toronto.
“The market is running with the idea that rates will return to low levels in time — the bigger picture idea is that we’re headed back to a 2010s era of low growth and low inflation, rather than a 1970s era of volatile inflation,” he said.
The greenback briefly pared losses after data
Read more on investing.com
