FOREX-Dollar slumps against Yen as traders dump rate differential trades
FOREX-Dollar slumps against  Yen as traders dump rate differential trades

US: The US dollar on Thursday fell to a three-week low against the Japanese yen and struggled against its other major rivals as markets increased bets on a slowing in the pace of rate hikes.

While Federal Reserve Chair Jerome Powell delivered a widely anticipated 75 basis point interest rate raise, the Fed changed its statement to reflect some softening in recent data and withdrew its promise to guide markets on the future path of interest rates. 

The dollar's depreciation against the yen was the most prominent, with the greenback falling about 1% to 135.10 yen, its lowest level since early July. The yen was the biggest gainer of the growing interest rate differential trade between the US and its worldwide counterparts.

"Speculation is growing that the dollar has peaked if the pace of tightening slows in September after successive 75bp increases in June and July," said Kenneth Broux, a London-based FX analyst at Societe Generale. "It is still too early to draw clear conclusions, and the next step will be determined by incoming data."

Markets have already increased their bets on future US interest rate hikes, with futures now allocating a 65 percent probability of a 50 basis point raise in September, up from 50 percent on Wednesday. Bets on a 75 basis point increase have been reduced from 41 percent to 35 percent. The dollar index, which measures the greenback against six currencies, including the yen, fell 0.05 percent to 106.31 after falling 0.59 percent overnight, falling just short of 106.1, the lowest since July 5.

The euro, the index's most heavily weighted currency, was barely changed at USD 1.02045, after rising 0.82 percent overnight. After gaining 1.06 percent on Wednesday, sterling was 0.05 percent higher at USD 1.21640. Bitcoin gained 1.33 percent to USD 23,081.18, following a more than 8% gain the previous day. A measure of currency market volatility settled above 10% for the first time since July 8.

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