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Dollar holds its gains as Fed set for lengthy inflation fight

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HONG KONG — The dollar touched a

three-week high on Thursday after minutes from the Federal

Reserve’s July meeting pointed to U.S. interest rates staying

higher for longer to bring down inflation.

The stronger greenback caused the pound briefly to

dip below $1.2 in early European trading, its lowest in three

weeks, the euro to drop to as low as $1.0146 and the

Japanese yen to drift down to 135.45 per dollar.

This pushed the dollar index as high as 106.96, its

highest since late July.

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In the course of morning trading, however, the euro,

sterling and yen all pared their losses, recovering to trade

flat on the day, leaving the dollar index at 106.65.

Thomas Poullaouec, head of multi-asset solutions APAC at T.

Rowe Price, said he expected the dollar would “keep on smiling.”

“The ‘dollar smile’ theory holds that the currency does well

at each end of the global growth continuum, benefiting when

relative U.S. growth and rates are higher as well as from being

a ‘safe haven’ when global growth is declining – both of which

are happening,” he said in emailed comments.

“At this point, it appears the only thing that could slow

the dollar is a pivot by the Fed, which would likely only come

amid signs of much weaker growth in the U.S. or stronger

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evidence of receding inflation. For now it looks like the dollar

will keep on smiling.”

Fed officials saw “little evidence” late last month that

U.S. inflationary pressures were easing, minutes released on

Wednesday showed.

They flagged an eventual slowdown in the pace of hikes, but

not a switch to cuts in 2023 that traders until recently had

priced in to interest-rate futures.

Traders see about a 40% chance of a third consecutive 75

basis point Fed rate hike in September, and expect rates to hit

a peak around 3.7% by March, and to hover around there until

later in 2023.

In Asian trade, the greenback gained most against the

Antipodeans, especially the Aussie, which was dragged down as

weaker-than-expected wage growth weighed on Australia’s rates

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outlook.

The Australian dollar fell to a one-week low of

$0.6899, following labor data that showed falls in both

employment and the jobless rate, before bouncing back to

$0.6951, up a fraction.

China’s yuan, meanwhile, continued to struggle as

weak consumption, low confidence, anemic credit growth, a

property crisis and restrictive COVID-19 policies have cast a

long shadow over prospects for the world’s second-largest

economy.

The yuan fell nearly 0.2% to 6.788 per dollar, and also

dropped below its 200-day moving average against the euro.

.

========================================================

Currency bid prices at 1137 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

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Session

Euro/Dollar $1.0188 $1.0178 +0.09% -10.39% +1.0193 +1.0146

Dollar/Yen 134.9050 134.9950 -0.02% +17.35% +135.4200 +134.8000

Euro/Yen

Dollar/Swiss 0.9516 0.9519 +0.03% +4.38% +0.9544 +0.9501

Sterling/Dollar 1.2068 1.2050 +0.14% -10.77% +1.2079 +1.1995

Dollar/Canadian 1.2888 1.2915 -0.19% +1.96% +1.2946 +1.2882

Aussie/Dollar 0.6960 0.6937 +0.33% -4.25% +0.6970 +0.6899

NZ 0.6299 0.6281 +0.25% -8.00% +0.6299 +0.6248

Dollar/Dollar

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

(Reporting by Tom Westbrook and Alun John

Editing by Kim Coghill and Mark Potter)

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