The dollar fell across the board on Thursday as investors’ appetite for riskier currencies increased on bets that the Federal Reserve is done raising interest rates after holding them steady in the previous session.
The Fed left interest rates unchanged on Wednesday as policymakers struggled to determine whether financial conditions are already tight enough to control inflation, or whether an economy that continues to outperform expectations needs more restraint.
Investors, however, are increasingly convinced that U.S. interest rates have peaked, with Fed funds futures pricing in a less than 20 percent chance of a December hike.
That view helped boost investors’ risk appetite on Thursday, helping to lift equities and higher-yielding assets such as commodities and emerging market currencies.
Brad Bechtel, global head of FX at Jefferies in New York, said the Fed is probably done raising rates, but he could see the rationale for one more tightening given the still-resilient U.S. economy.
“But at the same time, everybody is looking at a slowdown and inflation is moving in the right direction,” Bechtel said. “We can sort of debate whether they would raise another 25 (basis points) or not. It doesn’t matter. The broader theme is that the Fed is pretty close to the top.”
The dollar index, which measures the currency’s strength against a basket of six rivals, was down 0.3% at 106.14.
“Markets were not pricing in another tightening before yesterday, so nothing changes there. But at the margin, there may be a bit more conviction that the next move will be a cut,” said Shaun Osborne, chief currency strategist at Scotia Bank, in a note.
Sterling, meanwhile, rose after the Bank of England kept interest rates at a 15-year high and stressed that it does not expect to cut rates anytime soon.
The pound rose as much as 0.6% against the dollar to $1.2225, its highest level in 1-1/2 weeks, after the BoE voted 6-3 to hold interest rates at 5.25% while ruling out any cuts in the near future. The British pound was last up 0.4% at $1.2201.
The Australian dollar, often used as a proxy for risk appetite, jumped 0.54% on Thursday, while the New Zealand dollar rose 0.8%.
Norway’s central bank also left its key interest rate unchanged, as widely expected, but said it was likely to raise borrowing costs next month unless inflation continues to fall.
The dollar was 0.2% lower against the Norwegian crown at 11.16.
Against the yen, the dollar fell 0.3% to 150.44, off a one-year high reached earlier this week.
The yen has struggled to gain traction even as the Bank of Japan further eased its yield curve control policy on Tuesday.
A drop to a one-year low of 151.74 per dollar and a 15-year low of 160.83 per euro after the BoJ’s announcement had traders on the lookout for possible intervention to support the currency.
Kazuo Ueda, the central bank’s governor, will continue to dismantle its ultra-loose monetary policy and look to exit the decade-long accommodative regime sometime next year, sources told Reuters.
Bitcoin, slipped 1.7% to $34,836 after hitting an 18-month high of $35,968 earlier in the session.