The dollar hit a ten-day low against a basket of six major currencies on Thursday, pressured by growing fears over a possible economic slowdown in the US despite the Federal Reserve’s fourth rate increase this year.
The US dollar index was down 0.6 percent to $96.41, lower than its nine-day low of $96.554 booked in the previous session.
Currency strategist Alvin Tan said they are seeing some messy markets in currencies and the dollar is struggling to gain traction after the Fed decision.
Against the yen, the dollar slipped 0.7 percent to 111.68. The Japanese currency is on track for its fifth consecutive day of gains. The Bank of Japan (BOJ) left its ultra-loose monetary settings unchanged, maintaining its short-term rate target at -0.1 percent and the 10-year yield target around 0 percent.
The euro, meanwhile, rose 0.6 percent to 1.1455 against the greenback as reports of Italy sealing an agreement with the European Commission over its 2019 budget and strong trade data this week helped bolster the single currency.
The pound was also trading in the green against the dollar, gaining 0.5 percent to 1.2682. The Bank of England is set to hold its final policy meeting for 2018 later in the day, and markets expect the central bank to maintain current rates.
Elsewhere, the Swiss franc added 0.5 percent to 1.0106 against the greenback, having climbed more than 1 percent on Thursday after the central bank hiked interest rates for the first time in over seven years.
Fears of a Sluggish US Economy Remain
Overnight, the Fed raised the target range for its benchmark fund rate by 25 basis points to a range between 2.25 percent and 2.5 percent on Wednesday while projecting fewer rate hikes in 2019 than it had during its September policy meeting.
Even though US officials have stated that they might hike interest rates three times by early 2020, the US bond yield curve, a widely accepted measure of future recessions, flattened to 10 basis points and slightly higher than the 11-year low marked earlier this month.
An inversion of the bond yield curve is seen as a sign of economic recession with longer-term yields sinking below shorter-dated maturities and those worries brought about a global selloff in risky assets like equities as well as high yielding currencies such as the New Zealand dollar.
While the central bank’s so-called dot plots now suggest two, instead of three rate hikes for next year, the market remains uncertain and is hardly pricing in one increase in a reflection of rising market concerns over the condition of the global economy.
At the same time, China’s central bank rolled out a targeted policy tool to stimulate lending to small and private companies, a move that some analysts considered as equivalent to a targeted rate reduction.
The central bank stated that the targeted medium-term lending facility (TMLF) will offer long-term stable source of funding for financial institutions based on growth of their loans for small and private firms.
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