Dollar headed for weekly loss as investors brace for slower Fed hikes

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SINGAPORE : The dollar stood close to a three-month low and was on track for a weekly loss on Friday, as the prospect of the Federal Reserve slowing monetary policy tightening as soon as December dominated investors' minds and kept the mood buoyant.

Trading was thin overnight due to the Thanksgiving holiday in the United States, though most currencies extended their gains against a softer greenback before paring them slightly in early Asia trade.

Sterling rose more than 0.5 per cent overnight and last stood at $1.21125, close to its over three-month high of $1.2153 hit in the previous session and on track for a nearly 2 per cent weekly gain.

The Japanese yen jumped roughly 0.7 per cent overnight, and last bought 138.60 per dollar.

Minutes from the Fed's November meeting released earlier this week showed that a "substantial majority" of policymakers agreed it would "likely soon be appropriate" to slow the pace of interest rate hikes - remarks that sent the greenback tumbling.

The Fed's aggressive interest rate hikes and market expectations of how high the central bank could take them has been a huge driver of the dollar's 10 per cent surge this year.

"We've still got the third successive day of positive risk sentiment... I think that is keeping the U.S. dollar subdued pretty much across the board," said Ray Attrill, head of FX strategy at National Australia Bank.

Against a basket of currencies, the U.S. dollar index stood at 105.94, testing its three-month trough of 105.30 hit last week. It was headed for a weekly loss of nearly 1 per cent.

Also aiding risk sentiment slightly was a survey that showed that German business morale rose further than expected in November.

European Central Bank (ECB) policymakers fear that inflation may be getting entrenched in the euro zone, accounts of its October meeting showed overnight. However, markets are now expecting a more modest, 50 bp move at the December meeting.

The euro was 0.06 per cent lower at $1.04045, but remained close to $1.0481, its highest level in over four months hit last week.

"We have the euro zone inflation numbers next week, so I think they are going to be a big test of market pricing ... were we to get another upside surprise on that, then I think that would bring 75 bp back on the agenda," said Attrill.

The Aussie fell 0.17 per cent to $0.6753, after rising more than 0.4 per cent overnight. The kiwi slid 0.19 per cent to $0.6252, but tha...

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