(Adds detail, updates prices; changes byline; previous LONDON)
- Graphic: World FX rates https://tmsnrt.rs/2RBWI5E
The dollar dipped on Wednesday as risk sentiment improved and as investors focused on rising commodity prices and when global central banks are likely to begin hiking interest rates to fend off persistently high inflation.
The greenback hit a one-year high against a basket of other currencies last week as market participants ramped up bets that the Federal Reserve will raise rates sooner than expected to quell rising price pressures.
Those bets have faded, however, while investors are pricing for even more aggressive rate increases in other countries and as commodity-linked currencies including the Canadian and Australian dollars outperform.
“When it comes to central banks, there’s a lot of aggressive pricing out there,” said Bipan Rai, North American head of FX strategy at CIBC Capital Markets in Toronto, noting that the market is likely overstating how fast rate hikes will come.
The dollar index =USD was last down 0.09% at 93.71. Rai expects the dollar may outperform if investors pare back rate hike expectations in other countries, though “that’s something that’s going to take some time to correct.”
“When push comes to shove, given the underlying fundamentals in the United States, which are still very constructive for growth, we think the Fed is probably going to be the central bank that raises rates over the course of the coming years at a bit of a more aggressive clip than the market is pricing in now,” Rai said.
Market participants are pricing for the Fed to raise rates twice by the end of 2022.
ING FX strategists said in a client note the dollar's recent decline could be due to a combination of markets closing long-dollar positions and "a benign risk environment, where a strong U.S. earnings season has continued to offset inflation/monetary tightening concerns."
"At this stage, it looks like the dollar is lacking some catalysts to contain the ongoing correction, and any support to the greenback may need to come from a cool-off in the recent risk-on mood in markets," ING said.
The Australian dollar AUD=D3 , seen as a liquid proxy for risk appetite, gained 0.27% on the day to $0.7496, having hit its highest since July overnight.
The New Zealand dollar NZD=D3 rose 0.41% to $0.7154, the highest since June.
Reduced demand for safe-haven assets saw the dollar hit a four-year high of 114.67 versus the yen JPY=D3 overnight, before retracing to 114.26.
The Canadian dollar was higher on the day after the country’s annual inflation rate accelerated to an 18-year high in September, putting the focus on the Bank of Canada ahead of a rate decision next week.
The greenback was last down 0.07% against the loonie CAD=D3 at CAD$1.2352.
The British pound GBP=D3 was down 0.05% at $1.3781 after data showed that British inflation slowed unexpectedly last month. The figures did little to change expectations that the Bank of England will become the world's first major central bank to raise rates.
In cryptocurrencies, bitcoin BTC=BTSP hit a record high of $66,074, a day after the first U.S. bitcoin futures-based exchange-traded fund began trading.
======================================================== Currency bid prices at 9:46 AM (1346 GMT)Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid Previous Change Session Dollar index =USD 93.7100 93.8060 -0.09% 4.144% +93.8800 +93.6760 Euro/Dollar EUR=EBS $1.1640 $1.1632 +0.07% -4.73% +$1.1653 +$1.1617 Dollar/Yen JPY=D3 114.2550 114.4000 -0.12% +10.63% +114.6950 +114.1450 Euro/Yen EURJPY= 132.98 133.06 -0.06% +4.79% +133.4800 +132.7500 Dollar/Swiss CHF=EBS 0.9211 0.9230 -0.21% +4.11% +0.9252 +0.9207 Sterling/Dollar GBP=D3 $1.3781 $1.3790 -0.05% +0.88% +$1.3814 +$1.3743 Dollar/Canadian CAD=D3 1.2352 1.2363 -0.07% -2.98% +1.2367 +1.2335 Aussie/Dollar AUD=D3 $0.7496 $0.7477 +0.27% -2.55% +$0.7504 +$0.7465 Euro/Swiss EURCHF= 1.0720 1.0733 -0.12% -0.81% +1.0765 +1.0721 Euro/Sterling EURGBP= 0.8444 0.8431 +0.15% -5.53% +0.8460 +0.8430 NZ NZD=D3 $0.7182 $0.7154 +0.41% +0.03% +$0.7183 +$0.7147 Dollar/DollarDollar/Norway NOK=D3 8.3830 8.3525 +0.29% -2.45% +8.4120 +8.3575 Euro/Norway EURNOK= 9.7592 9.7187 +0.42% -6.76% +9.7789 +9.7071 Dollar/Sweden SEK= 8.6088 8.6203 -0.08% +5.03% +8.6361 +8.6026 Euro/Sweden EURSEK= 10.0217 10.0295 -0.08% -0.54% +10.0456 +10.0100 <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ World FX rates https://tmsnrt.rs/2RBWI5E^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
