LONDON (Reuters) – The dollar fell on Monday as investors became convinced that interest rates set by the Federal Reserve (US central bank) had reached their peak, although the central bank did not rule out further increases.
Fed Chairman Jerome Powell has left the door open to further monetary tightening, but with the benchmark interest rate at 5.5%, the highest level in 22 years, the risks of doing too much or too little are balanced out.
“Powell could have raised some concerns about the recent increase in short-term inflation expectations, but he chose not to do so,” notes Christopher Lomholt of Danske Bank.
“He could have sent a tougher signal, but he chose not to, and I think the markets are reacting to that.”
The dollar index, which measures the US currency against its six major counterparts, lost 0.5% to 106.33.
The euro gained 0.4 percent to $1.0615, and the yen moved away from its lowest level in a year, rising to 150.29 against the dollar.
Markets’ attention turns to the Bank of England, and the possibility that it may decide to align with the Fed’s message in today’s announcement.
The pound sterling advanced 0.3 percent to $1.2184 amid expectations that the central bank will keep interest rates high.
Markets are quite confident that the Bank of England will keep interest rates stable at their highest level in 15 years, but they expect cuts to begin from September next year, after the start of the euro zone’s down cycle.
(Translated by Luca Fratangelo, Edited by Alicia Beh)
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