NEW YORK: The euro rose back above parity against the dollar for the first time in a month on Wednesday after poor US economic data reinforced speculation that the Federal Reserve will slow its interest rate hikes, sending the greenback tumbling.
The European common currency rose as high as$1.0048, the highest since Sept. 20, and was last up 0.5% at $1.0019.
Sterling rose to 0.79% to $1.1563, its highest since Sept. 14, extending the previous day’s 1.6% gain when markets took succour from Rishi Sunak becoming Britain’s prime minister, and the dollar also fell against the Japanese yen , sliding 0.83% to 146.715.
At 10:35 a.m. EDT (1435 GMT), the dollar was down 0.595% at 110.28 against a basket of six peer currencies.
The dollar’s softening came as the benchmark 10-year US Treasury yield continued its descent from last week’s multi-year high of 4.338%, and was last down four basis points at 4.069%.
Fed officials have begun sounding out their desire to slow the pace of increases soon, according to a Wall Street Journal report on Friday that caused markets to reprice.
“Broad dollar weakness and further but milder declines in US Treasury yields than yesterday appear to reflect wishful thinking toward a Fed pivot next week,” said Derek Holt, head of capital markets at Scotia Economics.
“Don’t hold your breath,” he said.
The aggressive pace of Fed tightening this year, aimed at taming stubbornly high inflation, has turbo-charged the dollar.
Traders and economists predict a fourth straight 75 basis-point interest rate increase next Wednesday, but there is a growing view that the central bank will slow to half a point in December.
The view that the Fed could begin to pivot in December was reinforced by data on Tuesday that showed US home prices sank in August as surging mortgage rates sapped demand.
Data on Wednesday showed that sales of new US single-family homes dropped in September and data for the prior month was revised lower, supporting the view that Fed rate increases are already working to tap the breaks on the world’s biggest economy.
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