The U.S. dollar slumped to a three-week low versus the Japanese yen and struggled against its other major rivals on Thursday as markets ramped up bets on a softening in the pace of rate hikes.

While Federal Reserve Chair Jerome Powell delivered a widely expected 75 bps hike in interest rates, it altered its statement to cite some softening in recent data and dropped its commitment to guide markets on the future trajectory of interest rates.

The dollar's weakness was the most prominent against the yen with the greenback slumping nearly 1% versus the Japanese unit to hit its lowest since early July at 135.10 yen. The yen was the primary recipient of the widening interest rate differential trade between the United States and its global peers.

"Speculation is now building that the dollar may have peaked if the pace of tightening slows in September after consecutive 75bp moves in June and July," said Kenneth Broux, an FX strategist at Societe Generale in London.

"It is still too soon to draw any firm conclusions and the next move will depend on incoming data."

Markets have already ramped up bets of a softening in future U.S. interest rate hikes with futures now assigning a 65% probability of a 50 bps hike in September from 50% on Wednesday, according to CME. Bets of a 75 bps hike have been pared back to 35% from 41%.

The dollar index, which measures the greenback against six counterparts including the yen, edged 0.05% lower to 106.31 after dropping 0.59% overnight and just shy of 106.1 which would be the lowest since July 5.

The euro, which is the most heavily weighted currency in the index, was little changed at $1.02045, following a 0.82% jump overnight. Sterling was 0.05% higher at $1.21640, after rallying 1.06% on Wednesday.

Cryptocurrency bitcoin rose 1.33% to $23,081.18, after a more than 8% surge the previous session.

A gauge of currency market volatility settled at its highest level since July 8 above 10%.

(Reporting by Saikat Chatterjee; Editing by)


Reuters