NEW YORK : The U.S. dollar dipped to 16-week lows against a basket of major currencies on Thursday after data showed that U.S. consumer spending increased solidly in October, while inflation moderated, adding to expectations that the Federal Reserve is closer to reaching a peak in interest rates.
The move comes after Fed Chairman Jerome Powell on Wednesday said that it was time to slow rate hikes, noting that "slowing down at this point is a good way to balance the risks."
Investors took comfort from the comments, even as Powell also said that rates would still go higher and that controlling inflation "will require holding policy at a restrictive level for some time."
“We’re seeing the consumer is still keeping up with their spending, and in addition to that continuing claims are rising. So, we’re going to probably start to see that unemployment rate tick higher and I think this is going to support the idea that we’re going to see the Fed is close to done with their tightening cycle,” said Edward Moya, senior analyst at OANDA in New York.
“The markets are going to be a little bit more expecting that yields are going to continue to come down and also that’s going to be a weaker dollar,” Moya added.
Thursday’s data showed that consumer spending, which accounts for more than two-thirds of U.S. economic activity, jumped 0.8 per cent after an unrevised 0.6 per cent increase in September.
The personal consumption expenditures (PCE) price index rose 0.3 after advancing by the same margin in September. In the 12 months through October, the PCE price index increased 6.0 per cent after advancing 6.3 per cent in September.
The dollar index fell as low as 104.82 against a basket of currencies, the lowest since August 11 and the euro reached $1.05175, the highest since June 29. The greenback fell as low as 135.75 yen, the weakest since August 19. Sterling also reached $1.22890, the highest since June 27.
Fed funds futures traders are now pricing for the Fed’s benchmark rate to peak at 4.91 per cent in May, up from 3.83 per cent now. The traders had priced for a top of over 5 per cent before Powell’s comments on Wednesday.
Antipodean currencies also rose on expectations that China will ease its strict COVID restrictions.
China is set to announce an easing of its COVID-19 quarantine protocols in the coming days and a reduction in mass testing, sources told Reuters, a marked shift in policy after anger over the world's toughest curbs fueled widespread protests.
The Aussie reached $0.68400, the highest since September 13 and the kiwi hit $0.63995, the highest since August 15.
Currency bid prices at 9:50AM (1450 GMT)
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Dollar index 104.7400 105.7800 -0.97 per cent 9.489 per cent +105.9000 +104.7400
Euro/Dollar $1.0520 $1.0409 +1.07 per cent -7.46 per cent +$1.0524 +$1.0393
Dollar/Yen 135.9300 138.1100 -1.56 per cent +18.09 per cent +138.1100 +135.7500
Euro/Yen 143.00 143.65 -0.45 per cent +9.75 per cent +143.7600 +141.9200
Dollar/Swiss 0.9380 0.9457 -0.79 per cent +2.86 per cent +0.9460 +0.9380
Sterling/Dollar $1.2291 $1.2058 +1.94 per cent -9.11 per cent +$1.2294 +$1.2056
Dollar/Canadian 1.3412 1.3410 +0.04 per cent +6.10 per cent +1.3450 +1.3395
Aussie/Dollar $0.6836 $0.6789 +0.71 per cent -5.95 per cent +$0.6840 +$0.6753
Euro/Swiss 0.9867 0.9839 +0.28 per cent -4.84 per cent +0.9886 +0.9823
Euro/Sterling 0.8557 0.8626 -0.80 per cent +1.87 per cent +0.8642 +0.8554
NZ $0.6396 $0.6297 +1.56 per cent -6.56 per cent +$0.6400 +$0.6294
Dollar/Norway 9.7250 9.8500 -1.07 per cent +10.62 per cent +9.8480 +9.7450
Euro/Norway 10.2283 10.2355 -0.07 per cent +2.15 per cent +10.2644 +10.2289
Dollar/Sweden 10.3236 10.4905 -0.59 per cent +14.48 per cent +10.5228 +10.3203
Euro/Sweden 10.8575 10.9219 -0.59 per cent +6.09 per cent +10.9515 +10.8388
(Additional reporting by Alun John in London; Editing by Nick Zieminski)