(Adds data, outlook, comments from Fed officials, updates prices)
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.
Fed Chairman Jerome Powell said on Wednesday 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% after an unrevised 0.6% 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% after advancing 6.3% in September.
Other data on Thursday showed that U.S. manufacturing activity contracted for the first time in 2-1/2 years in November and U.S. construction spending fell in October.
Jobs data for November due on Friday is the next major U.S. economic focus. The dollar index =USD fell as low as 104.66 against a basket of currencies, the lowest since Aug. 11. It has now dropped below its 200-day moving average, which could signal further losses to come.
The euro EUR=EBS reached $1.05340, the highest since June 29. The greenback fell as low as 135.24 yen JPY=EBS , the weakest since Aug. 18. Sterling GBP=D3 also reached $1.23115, the highest since June 27.
Fed funds futures traders are now pricing for the Fed's benchmark rate to peak at 4.87% in May, up from 3.83% now. Traders had priced for a top of over 5% before Powell's comments on Wednesday. FEDWATCH USONFFE=
Fed Governor Michelle Bowman said on Thursday that the Fed should slow the pace of its rate increases in order to assess the impact of its hiking cycle.
But New York Fed President John Williams reiterated that more interest rate rises will be needed to bring down overly high levels of price pressures.
Antipodean currencies were also boosted by expectations that China will ease its strict COVID restrictions.
China is set to announce an easing of its 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 AUD=D3 reached $0.68470, the highest since Sept. 13 and the kiwi NZD=D3 hit $0.64000, the highest since Aug. 15.
======================================================== Currency bid prices at 3:05PM (2005 GMT)Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid Previous Change Session Dollar index =USD 104.7400 105.7800 -0.96% 9.489% +105.9000 +104.6600 Euro/Dollar EUR=EBS $1.0514 $1.0409 +1.03% -7.50% +$1.0534 +$1.0393 Dollar/Yen JPY=EBS 135.2950 138.1100 -2.03% +17.54% +138.1100 +135.2400 Euro/Yen EURJPY= 142.25 143.65 -0.97% +9.15% +143.7600 +141.9200 Dollar/Swiss CHF=EBS 0.9369 0.9457 -0.93% +2.72% +0.9460 +0.9366 Sterling/Dollar GBP=D3 $1.2251 $1.2058 +1.66% -9.36% +$1.2311 +$1.2056 Dollar/Canadian CAD=D3 1.3428 1.3410 +0.14% +6.21% +1.3470 +1.3395 Aussie/Dollar AUD=D3 $0.6811 $0.6789 +0.35% -6.29% +$0.6845 +$0.6753 Euro/Swiss EURCHF= 0.9850 0.9839 +0.11% -5.01% +0.9886 +0.9823 Euro/Sterling EURGBP= 0.8580 0.8626 -0.53% +2.14% +0.8642 +0.8548 NZ NZD=D3 $0.6372 $0.6297 +1.19% -6.90% +$0.6400 +$0.6294 Dollar/DollarDollar/Norway NOK=D3 9.7295 9.8500 -1.13% +10.55% +9.8480 +9.7250 Euro/Norway EURNOK= 10.2347 10.2355 -0.01% +2.22% +10.2644 +10.2195 Dollar/Sweden SEK= 10.3173 10.4905 -0.68% +14.41% +10.5228 +10.3110 Euro/Sweden EURSEK= 10.8477 10.9219 -0.68% +6.00% +10.9515 +10.8388 <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ World FX rates https://tmsnrt.rs/2RBWI5E^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
