Dollar slumps after Powell’s comments; sterling awaits BOE decision By Investing.com

Investing.com – The U.S. dollar fell sharply in early European trading on Thursday after comments from Fed Chairman Jerome Powell highlighted a likely spike in U.S. interest rates.

At 4:10 a.m. ET (0810 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was trading down 0.4% at 106.290, extending overnight losses.

Have Fed rates peaked?

The United States left rates unchanged on Wednesday, as expected, and although the president left the door open for another rate hike, he struck a less hawkish tone than markets expected, acknowledging that monetary conditions had tightened considerably in recent months.

Traders interpreted his comments as a sign that the Fed is likely done with its streak of rate hikes and is likely to reduce them by mid-2024.

Ten-year Treasury yields are down 20 basis points from Wednesday’s highs, having reached levels last seen in 2007, which hit the dollar hard.

“With Treasury yields remaining at elevated levels, the need for further policy rate hikes is significantly reduced and we do not expect further rate hikes from the Fed,” ING analysts said in a note.

BOE faces difficult balancing act

Attention now turns to the , which holds its final policy development meeting later in the session.

rose 0.1% to 1.2168, benefiting from dollar weakness, with the central bank widely expected to follow the European Central Bank and the Fed in keeping its policy rate unchanged at its highest level in 15 years.

The rate fell from a high of 11.1% in October 2022 to 6.7% in September, but that is still more than three times its target.

That said, the BoE must also take into account growing signs of strain in the economy and therefore faces a delicate balancing act: tackling still high prices without plunging the country into recession.

Euro advances ahead of manufacturing PMI data

rose 0.3% to 1.0602, again helped by dollar weakness, ahead of the October release, as well as figures from the eurozone as a whole.

These figures should show that the German economy, the largest in the euro zone, remains in a weak state.

That said, ECB policy chief Joachim Nagel said on Tuesday that the European Central Bank needs to keep interest rates high enough for long enough because inflation in the eurozone has not been brought under control despite a significant decline last year.

{{3|USD/JPY}} still above 150

Elsewhere, the yen fell 0.3% to 150.49, with the yen recovering sharply from a one-year low as government officials continued to threaten intervention in foreign exchange markets.

But the pair was still above the widely seen 150 level, after posting sharp losses this week following dovish signals from .

rose slightly to 7.3192, with the yuan receiving little help from dollar weakness as a string of poor economic figures from the country kept investors at bay.

rose 0.5% to 0.6420 as traders grew more confident that the government will raise interest rates at its meeting next week.