(Recasts, adds new comment, FX table, updates prices)
Fed funds futures price in 57% chance of 50 bps hike in December
BoE also to deliver 75 bps rate rise this week
Fed likely to repeat that central bank would be data-dependent
The U.S. dollar sank against major currencies on Tuesday, on some expectation that the Federal Reserve would signal a slower pace of tightening at its upcoming meeting to assess the impact of its rate hikes so far on the economy.
Investors widely expect the Fed this week to raise its benchmark overnight interest rate by 75 basis points (bps) to a range of 3.75% to 4.00%, the fourth such increase in a row.
But for December, the fed funds futures market has priced in a 57% probability of a 50-bps increase amid suggestions from Fed officials of potentially slowing down the tightening pace FEDWATCH . That was down, however, from roughly a 70% chance last Friday.
"Markets are hoping (Fed Chair) Jerome Powell will step into his Santa costume early, signaling a slower and more gradual pace of rate hikes in the months ahead," said Karl Schamotta, chief market strategist, at Corpay in Toronto.
"Traders positioning for an easing in global financial conditions are buying equities, commodities, and risk-sensitive currencies, while moving out of the safety of the dollar and Treasury markets. That this is exactly what the Federal Reserve wants to avoid doesn't seem to be fazing anyone: this doesn't seem sustainable," he added.
The Bank of England (BoE) is also meeting this week and expected to deliver a 75-bps increase as well. Traders then expect the BoE to slow down and raise rates by 50 bps in December BOEWATCH .
In mid-morning trading, the dollar fell 0.5% to 147.97 yen JPY=EBS . The U.S. dollar index =USD , which measures the greenback against six rivals, including the euro, sterling and yen - slid 0.3% to 111.23, eating away some of the 0.79% gain it made on Monday.
Sterling GBP=D3 rose 0.4% to $1.1505 after dropping more than 1% on Monday. The euro EUR=EBS rose 0.3% to $0.9907.
The dollar index has surged more than 15% this year as the Fed has hiked rates hard, crushing other currencies and heaping pressure on the global economy.
Investors have therefore taken cheer from speeches and interviews by some Fed officials that have suggested the central bank could do smaller hikes after Wednesday's meeting.
"Although the Fed may discuss downshifting at the December meeting, Powell will probably avoid pre-committing to such an action at this time," said Joseph Kalish, chief global macro strategist at Ned Davis Research.
"He will reiterate the Fed will be data dependent and will decide meeting by meeting." Markets were also reminded that global inflation remains stubbornly high on Monday when data showed euro zone prices surged by the most on record in the year through October.
The risk-sensitive Australian and New Zealand dollars rose from one-week lows amid the broad lift in market sentiment. The Aussie was little changed at US$0.64, while the Kiwi dollar rose 0.5% to US$0.54.
The Aussie trailed, however, after the Reserve Bank of Australia decided to stick with a slower quarter-point pace for rate hikes despite a surprise jump in inflation to a 32-year high in the third quarter.
The Chinese yuan fell to a near 15-year low against the dollar on Tuesday, before paring its losses after the central bank fixed the official guidance rate on the weaker side of the key 7.2 per dollar level for the first time since 2008. The dollar was last down 0.5% against the offshore yuan at 7.2979.
======================================================== Currency bid prices at 10:23AM (1423 GMT)Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid Previous Change Session Dollar index =USD 111.2600 111.5400 -0.23% 16.304% +111.5700 +110.7000 Euro/Dollar EUR=EBS $0.9905 $0.9881 +0.26% -12.86% +$0.9954 +$0.9873 Dollar/Yen JPY=EBS 148.0600 148.7500 -0.46% +28.62% +148.8200 +146.9900 Euro/Yen EURJPY= 146.67 146.99 -0.22% +12.55% +147.1200 +146.0500 Dollar/Swiss CHF=EBS 0.9976 1.0022 -0.44% +9.38% +1.0020 +0.9917 Sterling/Dollar GBP=D3 $1.1503 $1.1467 +0.18% -15.06% +$1.1565 +$1.1460 Dollar/Canadian CAD=D3 1.3625 1.3624 +0.01% +7.77% +1.3648 +1.3532 Aussie/Dollar AUD=D3 $0.6403 $0.6397 +0.10% -11.91% +$0.6464 +$0.6386 Euro/Swiss EURCHF= 0.9880 0.9896 -0.16% -4.72% +0.9921 +0.9852 Euro/Sterling EURGBP= 0.8610 0.8619 -0.10% +2.50% +0.8624 +0.8597 NZ NZD=D3 $0.5843 $0.5815 +0.40% -14.71% +$0.5902 +$0.5818 Dollar/DollarDollar/Norway NOK=D3 10.3175 10.3970 -0.74% +17.15% +10.3895 +10.2370 Euro/Norway EURNOK= 10.2224 10.2741 -0.50% +2.09% +10.2885 +10.1696 Dollar/Sweden SEK= 10.9877 11.0227 -0.16% +21.84% +11.0741 +10.9165 Euro/Sweden EURSEK= 10.8850 10.9021 -0.16% +6.36% +10.9116 +10.8506 <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ World FX rates https://tmsnrt.rs/2RBWI5E^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
