Dollar collapses as risk appetite rebounds


NEW YORK (Reuters) – The dollar fell broadly on Thursday as improving risk sentiment in global financial markets erased gains in the previous session after the US Federal Reserve announced plans to cut its stimulus measures this year.

FILE PHOTO: Four thousand US dollars are counted by a banker counting change at a bank in Westminster, Colorado, November 3, 2009. REUTERS / Rick Wilking / File Photo

Investors’ risk appetite improved after Beijing pumped fresh money into its financial system ahead of an $ 83.5 million bond coupon from struggling real estate giant Evergrande, risking becoming the one of the largest corporate defaults in the world.

Concerns over Evergrande’s payment obligations and systemic risks to the Chinese financial system posed by the real estate giant’s struggles have weighed on global sentiment of financial risk in recent sessions.

“Commodity currencies are generally higher while safe havens are weaker, leaving the dollar to trade generally lower after a firm close after the Federal Open Market Committee (FOMC),” said Shaun Osborne, strategist in head of currency at Scotiabank, in a note.

The US dollar currency index, which measures the greenback against a basket of six rivals, fell 0.5% to 93.037. The index, which had risen 0.25% on Wednesday, was on the verge of its biggest daily percentage drop in a month, but remains close to the nearly 10-month high reached in late August.

The offshore Chinese yuan strengthened against the greenback at 6.4599 per dollar.

The dollar found little support in data which showed the number of Americans filing new jobless claims rose unexpectedly last week amid an increase in California.

Thursday’s improving mood boosted risk-sensitive commodity currencies, with the Australian dollar rising 0.9% and the New Zealand dollar 1.0%.

Improved risk appetite was reflected in major Wall Street stock indexes, with the S&P 500 on track for a gain of more than 1% and its largest two-day percentage gain since late July.

On Wednesday, the Federal Reserve said it would likely start cutting its monthly bond purchases as early as November and signaled that interest rate hikes could follow faster than expected.

While positive for the dollar, the boost from the Fed’s announcement was thwarted by hawkish messages from several central banks in Europe, and Norway became the first developed country to hike rates.

The Norwegian krone jumped to a 3.5-month high against the euro on Thursday after the central bank raised its benchmark interest rate and said more hikes would follow in the coming months.

The pound extended its rise on Thursday after the Bank of England said two of its policymakers voted to end government bond purchases early in the era of the pandemic and markets advanced their expectations of an interest rate hike in March.

In emerging markets, the Turkish lira fell to an all-time low after a surprise 100 basis point interest rate cut to 18% despite inflation hitting 19.25% last month

Meanwhile, bitcoin extended its rally after falling sharply earlier this week, rising 2.42% to a 3-day high of $ 44,642.78.

Reporting by Saqib Iqbal Ahmed and Chuck Mikolajczak; Additional reporting Sujata Rao and Saikat Chatterjee in London and Tom Westbrook in Singapore; Editing by Bernadette Baum, Will Dunham and Hugh Lawson

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