FOREX-Norway's crown leads charge vs U.S. dollar after cbank rate hike
* Dollar edges off one-month high post-Fed
* Norway, British central banks to meet
* Graphic: World FX rates tmsnrt.rs/2RBWI5E
LONDON, Sept 23 (Reuters) – Norway’s crown led currencies against a struggling dollar on Thursday after the Norges Bank became the first central bank in the developed world to raise interest rates in the post-pandemic era.
Norway’s decision to hike interest rates a quarter of a percentage point to 0.25% overshadowed a decision by the Federal Reserve to start tapering its bond purchases by November which sent the dollar weakening broadly against its rivals.
The crown rallied to its highest levels since mid-June versus the euro to 10.07 crowns per euro while it climbed 0.7% against the U.S. dollar.
“While today’s rate decision didn’t come as a surprise to markets, the upwards revision to its projected policy path beyond June 2022 despite the sub-target inflation projection did,” said Simon Harvey, senior FX market analyst at Monex Group. “This is what largely moved the needle for the crown this morning.”
The dollar’s losses also widened after a report that Chinese regulators have asked China Evergrande Group to avoid a near-term default on dollar bonds.
Regulators in a recent meeting with Evergrande executives said the company should communicate proactively with bondholders to avoid a default but did not give more specific guidance, Bloomberg Law reported.
Against a basket of its rivals, the dollar weakened 0.4% to 93.14. The brunt of its losses were against the Canadian dollar and the Scandinavian currencies.
At a widely expected meeting this week, nine of the U.S. central bank’s 18 policymakers projected borrowing costs will need to rise next year, inducing markets to bring forward the timing of the first rate rise to January 2023.
The dollar and bond yields however fell, with many seeing the Fed as having left some policy wiggle room to slow down if needed. “A lot of the dollar strength we saw on Friday and Monday was down to risk aversion. The Fed slightly raised its median (interest rate) expectations for 2023 but you are still talking of a terminal rate of 1.5%-1.7% which is ok but not situation where you get an aggressive bid for the dollar,” said Peter Kinsella, head of FX strategy at asset manager UBP.
“To get the dollar to strengthen much you need to see the front end (of the Treasury yield curve) steepen and that’s not happening.”
The gap between five-year notes and 30-year bonds fell below 100 basis points after the Fed statement, the lowest since July 2020 while the 2-year/10-year curve has flattened more than 50 bps since end-March.
The euro was up at $1.1721, a month high while sterling also rose ahead of a Bank of England meeting which is expected to strike a hawkish tone.
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