Dollar tumbles to 1-month low on US rate outlook, growth concerns

NEW YORK: The dollar fell to a one-month low on Thursday, after the Federal Reserve signaled fewer interest rate hikes over the next two years and expressed caution about the US economic outlook, lessening the appeal of dollar-denominated assets.

Investors also expressed concern that policymakers may be raising interest rates just as the US economy faces a slowdown.

Aside from lowering interest rate forecasts, the Fed also reduced growth and inflation expectations next year.

Sweden's currency, meanwhile, led gainers with the krona jumping 0.9 percent against the dollar on Thursday after its central bank raised interest rates for the first time in more than seven years.

In the United States, the two-year/10-year note yield curve - widely considered an indicator of future recessions - flattened to 10 basis points and just a shade above a 11-year low set earlier this month with an inversion widely considered as a harbinger of recession.

"It appears that markets are perhaps now starting to focus on some of the more dovish aspects of the Fed's announcement," said Nick Bennenbroek, currency strategist, at Wells Fargo Securities in New York.

"While the Swedish central bank's surprise rate hike, at least in terms of timing, was a reminder that in addition to slower Fed tightening, next year may also see more active global central bank tightening," he added.

In mid-morning trading, the dollar fell 0.6 percent against its rivals to 96.471, after earlier dropping to 96.258, its lowest in a month. On a daily basis, it is set for the biggest percentage drop in six weeks.

Diminishing repatriation flows have also dampened the dollar's outlook. They peaked at nearly $300 billion in the first quarter of 2018 but shrank more than two-thirds to $93 billion in the September quarter, according to latest US data.

SWEDISH CROWN SHINES

A rate hike by Sweden's Riksbank was not a consensus view in the foreign exchange markets, with a Reuters poll showing two-thirds of analysts expecting the Riksbank to keep rates unchanged. The remainder predicted a tightening.

In other currency pairs, the euro rose 0.6 percent to $1.1440 building on gains on Wednesday on news that Italy had struck a deal with the European Commission over its contested 2019 budget and some solid trade data this week.

The yen advanced against the dollar, which fell 0.8 percent to 111.60. In a widely expected decision, the Bank of Japan kept rates steady, maintaining its ultra-loose monetary settings.

While the Fed raised interest rates by a quarter point, China's central bank rolled out a policy tool to spur lending to small and private companies in a move that some analysts termed as equivalent to a targeted rate cut.