Cautious Fed pins dollar to two-week lows; euro rises
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[October 12, 2017]
By Saikat Chatterjee
LONDON (Reuters) - The dollar struggled
near a two-week low on Thursday as minutes of the last U.S. Federal
Reserve meeting raised expectations that future interest rate increases
would be limited after policymakers revealed a more cautious outlook
"It is no longer about the timing of the next rate hike or about the
subsequent ones but about what the terminal rate for the U.S. Federal
Reserve would be and that expectation is becoming lower by the day,"
said Edward Hardy, a corporate market analyst at Worldfirst, an FX
consultancy, in London.
Against a broad basket of currencies, the dollar <.DXY> was broadly flat
at 93.053, its lowest since Sept. 26. It has declined more than 1.5
percent this week.
The Fed minutes on Wednesday showed many policymakers still felt that
another rate increase this year "was likely to be warranted" but several
noted that additional tightening was dependent on upcoming inflation
The dollar's renewed weakness pushed the euro to a two-week high after
some strong data supported a growing view that the European Central Bank
will announce a plan to wind down its huge stimulus plan at a policy
meeting later this month.
"Given the Fed, the backing off of the concerns from Catalonia and the
upcoming ECB meeting, the euro should already be higher today," said
John Marley, head of FX strategy at Infinity international, a currency
risk management firm.
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U.S. dollar and Euro bank notes are photographed in Frankfurt,
Germany, in this illustration picture taken May 7, 2017. REUTERS/Kai
Political concerns have also ebbed for now after Catalonia stopped short of
formally declaring independence from Spain, putting a floor under the euro.
The euro touched its highest in more than two weeks at $1.1878, and was last up
0.1 percent on the day at $1.1860. It has risen for five consecutive sessions.
Industry data from Italy beat forecasts, after Germany reported robust trade
data earlier this week, indicating a broad-based economic recovery in the euro
zone despite the single's currency double-digit gains this year.
Morgan Stanley strategists say the euro is set to move higher on increasing
signs of robust economic activity and as global large money managers remain
underweight the single currency in an environment of strong global liquidity.
Large option expiries around current levels on the euro exchange rate kept the
currency in a tight range.
U.S. producer price data on Thursday and consumer price numbers on Friday will
be the next focus, after U.S. jobs figures last week showed a rise in wages that
boosted expectations that inflation is picking up.
(Reporting by Saikat Chatterjee; Editing by Robin Pomeroy)
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