The U.S. Fed’s smaller rate hike brings dollar strength closer to its end

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The DXY has fallen more than 10% in the past three months, Refinitiv data showed — and is a few points away from erasing almost all its gains that it’s seen in the past year, before the Federal Reserve embarked on its journey of interest rate hikes to tame inflationary pressures.

Kacper Pempel | Reuters

The U.S. dollar index continued to slump on Thursday as the Federal Reserve opted for a smaller interest rate hike of 25 basis points.

The DXY fell 0.3% during Asia’s morning session to 100.91, hovering at the lowest levels that it’s seen since April 2022, according to Refinitiv data.

The index fell overnight to hit a session low of 101.036 after the Fed Chair Jerome Powell acknowledged the central bank’s efforts to tame inflation is seeing some progress — despite giving little indication that it is nearing the end of its hiking cycle anytime soon.

Asian currencies saw relative strengthening with the move, with the Japanese yen strengthening by 0.4% to trade at 128.43 against the U.S. dollar.

The Korean won also strengthened 0.3% to stand at 1,218.6 against the greenback. The onshore Chinese yuan, likewise, strengthened 0.43% to trade at 6.7115 against the dollar.

The DXY has fallen more than 10% in the past three months, Refinitiv data showed — and is a few points away from erasing almost all its gains that it’s seen in the past year, before the Federal Reserve embarked on its journey of interest rate hikes to tame inflationary pressures.

Focus shouldn't be on how much the Fed cuts rates but on where they cut to: Standard Chartered

The turnaround in the dollar index will benefit currencies in the region, said Deutsche Bank International Private Bank’s Asia-Pacific chief investment officer, Stephanie Holtze-Jen.

“The relentless dollar strength, we will see an end to it,” Holtze-Jen told CNBC’s “Street Signs Asia.

“[A] strong dollar had curtailed investor sentiments going in here in terms of the markets in the Asia-Pacific, because it’s put a dent on the returns on the asset classes,” she said, adding that emerging markets are set to gain from a reversal of the index.

She added that the U.S. dollar-Chinese yuan will be an “important part to play” in currency trades in light of China’s reopening and dollar weakness.

More data ahead

Standard Chartered Bank’s managing director Steven Englander said Friday’s jobs data will be in focus for the dollar index. He said a reading in line with expectations will prompt it to continue its fall.

“If unemployment comes in on the low end, the dollar move will continue and the market will say yeah, we were right,” he said.

End of U.S. dollar strength will benefit emerging markets, says Deutsche Bank

“If the numbers continue to support the narrative, there’s still quite a bit of room for the dollar to fall,” he said.

The U.S. Bureau of Labor Statistics is scheduled to publish its count of nonfarm payroll growth for the month later this week. Economists surveyed by Dow Jones expect to see growth of 187,000 in that report.

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