Dollar heals losses against yen as traders abandon rate differential trades

LONDON, July 28 (Reuters) – The U.S. dollar fell to a three-week low against the Japanese yen and struggled against its other main rivals on Thursday as markets stepped up bets on a slower pace of gains rate.

As Federal Reserve Chairman Jerome Powell announced a widely expected 75 basis point hike in interest rates, he changed his statement to cite some easing in recent data and dropped his pledge to guide markets on the future path of interest rates. Read more

The dollar’s weakness was most significant against the yen, with the greenback tumbling nearly 1% against the Japanese unit to hit its lowest since early July at 135.10 yen. The yen has been the main recipient of the widening interest rate differential between the US and its global peers.

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“Speculation is building that the dollar may have peaked if the pace of tightening slows in September after back-to-back 75 basis point moves in June and July,” Kenneth Broux, FX strategist at Societe Generale told Reuters. London.

“It is still too early to draw definitive conclusions and the next step will depend on incoming data.”

Markets have already stepped up bets on an easing of future U.S. interest rate hikes, with futures now allocating a 65% chance of a 50 basis point hike in September from 50% on Wednesday, according to CME. Bets of a 75 basis point rise have been reduced to 35% from 41%.

The dollar index, which measures the greenback against six peers including the yen, edged down 0.05% to 106.31 after falling 0.59% overnight to just below 106. .1 which would be the lowest since July 5.

The euro, which is the most weighted currency in the index, was little changed at $1.02045, after jumping 0.82% overnight. The pound was up 0.05% at $1.21640, after rising 1.06% on Wednesday.

The cryptocurrency bitcoin rose 1.33% to $23,081.18, after rising more than 8% the previous session.

A currency market volatility indicator settled at its highest level since July 8 above 10%.

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Reporting by Saikat Chatterjee; Edited by

Our standards: The Thomson Reuters Trust Principles.

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