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Dollar Down, Less-Hawkish-Than Expected Fed Minutes Improves Sentiment

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By Gina Lee

Investing.com – The dollar was down on Thursday morning in Asia, with the safe-haven asset remaining near a one-month low. Investor risk appetite improved after the minutes from the U.S. Federal Reserve's last meeting confirmed the potential for a pause in rate hikes after two more half-point increases in June and July 2022.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies inched down 0.06% to 101.83 by 12:39 AM ET (4:39 AM GMT).

The USD/JPY pair edged up 0.11% to 127.44.

The AUD/USD pair edged down 0.18% to 0.7080 and the NZD/USD pair edged down 0.15% to 0.6464.

The CNY/USD pair gained 0.53% to 6.7285 and the GBP/USD pair inched up 0.09% to 1.2576.

The dollar index consolidated around the 102.03 mark after Wednesday’s Fed minutes saw a short-lived bounce immediately afterward. However, the bounce died down as the Asian session opened, with some investors saying that there were few surprises in the minutes. U.S. shares climbed overnight, while long-term Treasury yields held steady.

Atlanta Federal Reserve President Raphael Bostic had already suggested earlier in the week that a pause might be the best course of action in September 2022 to monitor the effects on the economy following two more 50-basis-point hikes in June and July.

"A soft dollar index (DXY) backdrop is forming, with risk appetite firming," Westpac strategists said in a note.

"It's still too early to call a long-term DXY peak though," the note added. "DXY could range for a bit, but retracements into the 101 level are a buy."

The dollar index hit a nearly two-decade peak above 105 in mid-May, but signs that aggressive Fed action could already be contributing to slowing economic growth saw investors scale back tightening bets. U.S. Treasury yields also fell from multi-year highs.

The 10-year Treasury yield was up in Japan to 2.76% but has mostly just consolidated around that level in the week to date, and the dollar was little changed against the yen. The euro edged up 0.14% to $1.06955, boosted by European Central Bank President Christine Lagarde's comments earlier in the week that signaled an end to negative interest rates in the eurozone in the third quarter. This saw the single currency hit a one-month high of $1.0748 on Tuesday.

The New Zealand dollar shed most of the gains following Wednesday's hawkish Reserve Bank of New Zealand meeting outcome, which had lifted it to a three-week top of $0.6514.

Elsewhere in Asia-Pacific, the Bank of Korea hiked its interest rate to 1.75% as it handed down its policy decision earlier in the day.

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