The US dollar fell to three-month lows against the yen and pound on Thursday, after comments by Fed Chairman Jerome Powell that US rate hikes could be eased starting in December, but the euro failed to break through key resistance levels.
The aggressive pace of rate hikes by the US Federal Reserve this year has sent the dollar soaring, following higher US benchmark yields and fears the central bank will push the US economy into recession in its attempts to fight inflation.
According to Powell, setting interest rates at this point is a good way to offset risk. He added, however, that controlling inflation "will require holding policy at a limited level for some time".
The market is pricing in an 80% probability that the Fed will raise rates by 50 basis points at its next meeting, compared to a 20% chance of another 75 basis point hike based on CME's Fedwatch tool.
The US dollar fell 1.64% to 135.85 yen, its lowest since Aug. 23, but later recovered to 136.26. The dollar-yen pair is particularly sensitive to changes in long-term US Treasury yields, which fell after Powell's comments and hit a two-month low of 3.587% in London trading today.
The pound also strengthened sharply, rising 0.88% to $1.2164, its highest since August 12, hovering around its 200-day moving average.
The price index of personal consumption expenditures excluding food and energy, which Fed Chairman Jerome Powell insisted this week was a more accurate gauge of the direction of inflation, rose below a forecast 0.2% in October from a month earlier.
This data has prompted a further decline for the US dollar index traded down 1.07% to a trading level of 104.752.
The euro also made some gains, up 1.16% to $1.0527. The dollar weakened against most other G10 currencies, falling 0.2% against the Swiss franc while the Australian dollar hit $0.684, its highest since September 13 and the New Zealand dollar hit $0.636, its highest since August 17.
The giant cities of Guangzhou and Chongqing announced the easing of Covid restrictions on Wednesday, while officials in Zhengzhou.
China's yuan saw some volatility in offshore trading after media reported that the capital Beijing would allow some people to self-quarantine at home.
