The US dollar weakened against most major currencies on Thursday as the positive effects of the Federal Reserve's hawkish comments faded and investors awaited more signs of confirmation of the likelihood of larger rate hikes to curb inflation ahead.
The Bank of England raised interest rates by the biggest rate since 1995 but sterling continued to weaken as the central bank warned that a prolonged recession was imminent with inflation leading at 13%.
Fed officials dismissed the notion that US interest rates are close to peaking. San Francisco Fed President Mary Daly and Minneapolis Fed President Neel Kashkari voiced their determination to rein in high inflation. However, the impact of 'hawkish' rhetoric on the US dollar is seen to be fading with market players being more defensive in the opening of the US market.
According to ING currency strategist Francesco Pesole, referring to the US employment data, the view is that we have had some 'hawkish' comments, but that may not be enough and investors will look for confirmation from the NFP data later".
He continued, 'the effect on the US dollar is fading today. Risk sentiment is also more lively where the market is not too worried about the situation in Taiwan".
Visit of the Speaker of the U.S. House of Representatives Nancy Pelosi's visit to Taiwan has led to heightened tensions between Washington and Beijing, which regards Taiwan as its sovereign territory.
The US dollar index which measures the US dollar against six major currencies traded down 0.22% to a trading level of 106.142. The euro strengthened by 0.29% to a trading level of 1.0192 against the US dollar.
The strengthening of the US dollar has not yet peaked based on a survey released by Reuters. The survey found , 70% think the US dollar has room to rise further in this cycle, even after the index hit a two-decade high in July.
Market players expect a 50 basis point hike at the September Fed meeting, and about a 44% chance of a big hike of another 75 basis points.
The pound weakened after the BoE meeting and was last down almost 0.5% to $1.2090. The BoE raised rates by 50 basis points to 1.75%, the highest level since late 2008 and at the same time issued a recession warning.
"The gloomy outlook for GDP and rising inflation forecasts included in the meeting minutes have undermined market confidence and this has translated into a weaker sterling."
The risk currency rose as some concerns about Pelosi's visit eased.
The Australian dollar was at $0.6964, up 0.3%. The New Zealand currency was also 0.3% higher at $0.6292.
