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Dollar Falls as Risk Sentiment Improves After Fed Minutes

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by Ankur Banerjee

SINGAPORE (Reuters) – The US dollar was weak overall on Thursday as investors, emboldened by the prospect of a slower rate hike from the Federal Reserve, turned to riskier assets.

The long-awaited readout from the November 1-2 meeting of the Fed showed that officials were largely satisfied that they can now move forward in small increments.

“I think it is now almost certain that the FOMC will slow the pace of tightening from December onwards,” said Carol Kong, currency strategist at the Commonwealth Bank of Australia (CBA).

The dollar index, which measures the greenback against six major counterparts, fell 0.066% to 105.830 after falling 1% overnight.

This month, the Fed raised its policy rate by three-quarters of a percentage point for the fourth time in a row in an attempt to contain stiflingly high inflation.

But cooler-than-expected consumer price data in the US raised hopes for a more moderate pace of growth. Those expectations led to the dollar index falling 5.1% in November, putting it on track for its worst monthly performance in 12 years.

Citi strategists said there was still significant uncertainty about how high rates could rise, despite a general consensus that rates would rise more slowly.

The minutes also highlighted an emerging debate within the Fed about the risks rapid policy tightening could pose to economic growth and financial stability. At the same time, policymakers acknowledged that there has been little clear progress on inflation and that rates have yet to be raised.

Data on Wednesday showed US business activity contracted for a fifth consecutive month in November, with new orders falling to a 2-1/2-year low as higher interest rates slowed demand.

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However, the CBA’s Kong warned that markets are overly optimistic about a possible approaching end to the tightening cycle, noting that China’s zero-covid policy still provided strong support for the US dollar.

Rising coronavirus cases have prompted Chinese cities to impose further restrictions, raising investor concerns about the economy and reining in risk appetite.

The Australian dollar gained 0.25% against the dollar to $0.675, while the kiwi rose 0.26% to $0.625.

The euro was up 0.23% to $1.0419, while the pound last traded at $1.2083, up 0.26% on the day. The pound rose 1.4% overnight after early UK economic activity data beat expectations, although it still showed contraction underway.

The Japanese yen rose 0.54% against the greenback to 138.84 per dollar.

US markets are closed for Thanksgiving on Thursday and liquidity is likely to be lower than usual.

(Reporting by Ankur Banerjee in Singapore; editing by Edwina Gibbs)

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