The US dollar fell on Thursday, giving up some of its gains this week, as investors took profits after the US Federal Reserve left interest rates unchanged on Wednesday, as expected, with markets widely expecting a rate hike at its next meeting.
With uncertainty around the next US Federal Reserve chair also winding down as US President Donald Trump preparing to nominate Governor Jerome Powell, seen as less hawkish than other candidates, markets waited for fresh data to push the dollar .
“The dollar has been difficult to trade with more downside risks in store after it has failed to react strongly to the positive headlines about Powell's appointment or the tax reform Bills,” said John Marley, head of FX strategy at Infinity International, a currency risk management firm.
Against the yen, the dollar slipped 0.1 per cent to 114.09 yen. It had gained about 0.5 per cent overnight and approached the 114.450 it reached on Friday, its highest level since July, underpinned by upbeat US data and enhanced prospects for a December interest rate hike.
Against a broad basket of currencies, the dollar was 0.2 per cent lower at 94.67.
The Fed raised the expectations for a year-end rate increase by highlighting “solid” economic growth and a strengthening labour market.
ADP report
A robust ADP report on US employment on Thursday was the latest in a list of strong indicators that have backed the Fed's quest to normalise monetary policy and threw the spotlight for the monthly payrolls data on Friday.
But some market watchers pointed to the shrinking interest rate differentials between 10- and 2-year US Treasury yields as a sign that the dollar may be peaking with the US economy entering a late-cycle rally.
US tax bill
The outcome of the US tax Bill also disappointed some investors. After an embarrassing one-day postponement of the Bill's unveiling on Wednesday, US lawmakers have made plans for a measure that will seek up to $6 trillion in tax cuts over 10 years but is not likely to spell out in detail how they should be offset.
Markets have priced in another 25-basis-point rate hike at a policy meeting next month, according to CME's Fedwatch tool.