Dollar extends Fed-related losses, ECB expected to hike

Aussie, New Zealand dollar among biggest gainers

LONDON (Reuters) - The dollar extended losses on Thursday, a day after the Federal Reserve delivered what some expect to be its last rate hike, while the market's focus shifted across the Atlantic to the European Central Bank's impending rate announcement.

The Fed on Wednesday raised interest rates by a quarter of a percentage point, as expected, marking its 11th rate increase in its last 12 meetings.

While Fed Chair Jerome Powell left the door open to another hike in September, traders appeared unconvinced and the dollar extended on Wednesday's modest post-meeting 0.3 per cent drop.

"The market considers that it is likely the series of rate hikes, we've had, are over now," said Jane Foley, head of FX strategy at Rabobank.

"(The) US is closer to the end of the hiking cycle than its peers. A dovish pivot from the Fed will likely exert a downward pressure on the US dollar in the medium term," said Emin Hajiyev, senior economist at Insight Investment.

The ECB comes under the spotlight next, with investors expecting the central bank to similarly raise rates by 25 bps at the conclusion of its monetary policy meeting on Thursday, with the focus on its forward guidance and expectations for the September.

Ahead of the decision, the euro gained 0.4pc to $1.1128.

"The market has been positioned for the ECB to hike in September," Rabobank's Foley said.

"If the probability of a September move is even slightly diminished relative to what the market had been expecting, the euro could be a little less robust."

The Japanese yen, meanwhile, was 0.2pc higher against the dollar at 139.95.

The Bank of Japan (BOJ) announces its monetary policy decision on Friday, and is largely seen maintaining its ultra-loose policy stance, although a tweak to its yield curve control policy remains a possibility.

Against the weaker US dollar, the risk-sensitive Australian and New Zealand dollars strengthened, as prospects that the global monetary tightening cycle could soon be ending boosted sentiment.

The New Zealand dollar was 0.7pc higher at $0.6255, having earlier surged more than 1pc to a one-week high of $0.6274.

The Aussie similarly jumped nearly 1pc to a one-week top of $0.6821.

Read more: Dollar's decline throws spotlight on battered commodity currencies

Sterling touched a one-week high of $1.2985 earlier in the session and was last 0.3pc higher. The Bank of England is expected to raise its interest rate for the 14th consecutive meeting in its policy announcement next week.

China's yuan edged higher in the offshore market, rising nearly 0.5pc to a peak of 7.1170 per dollar, its strongest level since mid-June. It was last at 7.1426 per dollar.

China's industrial profits extended this year's double-digit pace of declines into a sixth month, data on Thursday showed, bolstering the case for further policy support to aid the economy.