Written by Ray Wee
SINGAPORE (Reuters) – The U.S. dollar rose broadly on Thursday, reversing a brief slump following an overly aggressive interest rate cut by the Federal Reserve that was widely priced in by markets.
The U.S. central bank on Wednesday began its monetary easing cycle with a larger-than-usual cut of about half a percentage point, with Fed Chairman Jerome Powell saying it was meant to show policymakers’ commitment to keeping unemployment low now that inflation has eased.
Although investors had anticipated the size of the move partly because of a series of media reports suggesting it ahead of the decision, it was contrary to the expectations of economists polled by Reuters, who were heading for a 25 basis point cut.
However, markets responded in typical “buy the rumor and sell the fact” fashion, keeping the dollar in the lead during Asian trading, as it recovered losses against its peers in the run-up to the Fed meeting.
The US dollar rose against the yen by about 1.2% to reach an intraday high of 143.95 yen earlier in the session. In the latest trading, it recorded a rise of about 0.62% at 143.15 yen.
“There was sharp pressure on short positions in USD/JPY as markets took profits after the Fed meeting,” said Christopher Wong, currency strategist at OCBC.
The Swiss franc fell about 0.3 percent to 0.8487 francs per dollar, while the euro fell 0.01 percent to $1.1117, away from a three-week high hit in the previous session.
The dollar index, which measures the greenback’s value against a basket of six currencies, rose slightly to 101.03, after sliding to a more than one-year low of 100.21 in the previous session.
“There’s obviously a lot of volatility around the announcement, but in terms of the pricing moves and the information that’s come out… it’s not really controversial in a sense,” said Rodrigo Catril, chief foreign exchange strategist at National Australia Bank.
“It was very close to what the market had priced in, especially in terms of expectations — which were arguably a little over 100 basis points — but 100 basis points of rate cuts this time and another 100 next year, plus an eventual rate of less than 3% as well. So the big picture … is not materially different.”
Federal Reserve policymakers on Wednesday projected the benchmark interest rate would fall another half percentage point by the end of this year, a full percentage point next year and a half percentage point in 2026, though they said the outlook that far into the future was not necessarily certain.
“Our view is that the dollar will fall next year. This is a cyclical story, not a structural story,” Eric Robertson, head of global research and chief strategist at Standard Chartered, said during a media roundtable in Singapore on Wednesday.
“We believe the dollar will weaken as the Fed eases interest rates and the global economy sees a soft landing, which tends to be a benign scenario that tends to be negative for the dollar.”
The pound fell 0.04 percent to $1.3208 after hitting a peak of $1.3298 in the previous session, its strongest level since March 2022.
This came after data on Wednesday showed inflation in Britain was steady in August but accelerated in the services sector, which the Bank of England closely watches, boosting bets that the central bank will keep interest rates on hold later in the day.
“When it comes to the Bank of England, it’s clear that yesterday’s inflation figures show that they are still concerned or have a problem with inflation, and in particular services inflation is still too high to be comfortable,” said NAB’s Cattrell.
“So to expect monetary policy to ease today because of what the Fed did seems a bit hard to believe.”
Elsewhere, the Australian and New Zealand dollars drew support from domestic data surprises.
A positive jobs report showed hiring in Australia beat expectations for a third straight month in August while the unemployment rate remained steady, reinforcing the view that the labour market remains strong.
This helped lift the stock by 0.44% to $0.6794.
Meanwhile, the pound rose 0.07% to $0.6212, after data showed New Zealand’s economy contracted by 0.2% in the second quarter, slightly better than the 0.4% decline expected.