SINGAPORE- The dollar was on the back foot on Thursday, even as the Federal Reserve kept to its hawkish rhetoric after raising rates by half a percentage point, as investors were doubtful over how much the central bank would commit to putting the brakes on growth to curb inflation.
Fed Chair Jerome Powell said overnight that the Fed will deliver more interest rate increases next year despite a possible recession in the US, with rates expected to peak above 5 percent.
That did little to sustain an initial rally to the greenback.
Against the dollar, the pound and the euro hovered near their six-month highs in early Asia trade on Thursday, after having touched those levels in the previous session.
Sterling was last 0.1 percent lower at $1.2415, following a 0.5 percent overnight gain, while the euro slipped 0.09 percent to $1.0673, having also risen 0.5 percent overnight.
The kiwi fell 0.05 percent to $0.6456, though it was similarly not far off the six-month peak of $0.6513 it hit this week.
Although the dollar had received a boost in the immediate aftermath of the Fed’s widely expected 50 basis point rate increase and Powell’s speech, it later reversed some of those gains as markets pondered the darkening growth outlook in the world’s largest economy.
The 50 bp increase marked a downshift after four consecutive 75 basis point rate hikes.
Against a basket of currencies, the US dollar index was last 0.02 percent higher at 103.68, after touching a six-month low in the previous session.
“The Fed does not want financial conditions to ease, but increasingly investors are saying: we hear what you are saying and we know what you want, but we don’t believe you,” said Christian Hoffmann, portfolio manager and managing director at Santa Fe, New Mexico-based Thornburg Investment Management.
Fed funds futures also show that markets are expecting US rates to peak just under 5 percent by May next year.
Fuelling market skepticism that the Fed may not take rates to such a restrictive level as it has set out is the belief that inflation has likely peaked.
US consumer prices rose less than expected for a second straight month in November, data released this week showed, with underlying consumer prices advancing by the least in 15 months. — Reuters
