The dollar fell against most other major currencies on Thursday, with some analysts arguing that it will now take more than next month's expected action on US monetary policy to drive it higher. The Japanese yen gained almost half a percent after the Bank of Japan kept policy steady. The New Zealand and Australian dollars both rose almost 1 percent and the euro around half a percent to push back above $1.07.
US bond markets reacted to signals in Wednesday's Federal Reserve minutes that a US rate rise in December may now be "appropriate", sending US short-term interest rates higher. But the dollar stalled again above $1.06 against the euro, with some players citing profit-taking by some bigger funds. "That the dollar is lower signals that this outcome (of the December meeting) is increasingly discounted, particularly in the wake of recent, very heavy USD buying," said Citi's Asian head of G10 FX strategy, Todd Elmer.
"It likewise means that for the USD to head higher still, some signal on the trajectory of rates beyond the first hike may be needed." The dollar index was down 0.5 percent at 99.139. It hit a high of 99.853 overnight, closing in on the 12-year peak of 100.39 set in March. There are still plenty of dollar bulls out there.
"We think only about 60 percent of the Fed hike is priced in, so there is clearly scope for the dollar to go higher if that pricing moves to 80-90 percent," Barclays strategist Nick Sgouropoulos said. "You could see this morning that people are selling the rally in euro-dollar." The Fed funds futures curve is pricing in two hikes with a minimal chance of a third throughout 2016. Barclays, which sees the euro at $1.03 by the end of this year, expects four. The euro gained a quarter of a percent to $1.0682 by 0920 GMT.
Fed officials also backed expectations of a rate rise, with Fed President Dennis Lockhart, New York Fed President William Dudley and Cleveland Fed President Loretta Mester all expressing confidence that the policy tightening, when it comes, will be implemented smoothly for markets. "Its a broad dollar move today. The dollar has come under some pressure, allowing the other G10 currencies to gain back some ground," said Ian Stannard, head of European FX strategy at Morgan Stanley in London. "The consensus positioning has been long dollars, short most of the other G10 currencies, with the possible exception of the yen. So it wouldn't surprise if we had a more cautious approach going into the year-end and the Fed meeting."
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