SINGAPORE – The dollar slipped against most major currencies on Thursday after the US Federal Reserve opened the door to a pause in its aggressive tightening cycle, though markets were buffeted by risk aversion amid a rout in regional US bank shares.
The Fed on Wednesday raised its benchmark overnight interest rate by a quarter of a percentage point, as expected, but in doing so dropped from its policy statement language that it “anticipates” further rate increases would be needed.
That sent the US dollar down broadly and Treasury yields sliding, with traders taking the comments as a signal for a peak in US rates had been reached and moved to price in rate cuts later this year.
In thinned Asian trade on Thursday, the British pound held at a roughly 11-month high of $1.2590, having reached that level in the previous session.
Markets in Japan remain closed for a holiday.
The euro was last 0.2 percent higher at $1.1083, flirting with its recent one-year peak.
“The most notable part of (the) statement was the section outlining the outlook for policy going forward, as the FOMC watered down its language regarding the need for additional monetary tightening,” said Jay Bryson, chief economist at Wells Fargo.
“Additional tightening may be needed … but the FOMC does not appear to be pre-committing to another rate hike on June 14.”
The US dollar index was last 0.12 percent lower at 101.11, after dropping more than 0.6 percent in the previous session.
Money markets are now expecting the Fed to keep interest rates steady at its next meeting in June, and have priced in roughly 80 basis points of rate cuts beginning July through to the end of the year. – Reuters
