The US dollar weakened on Thursday (November 13th) as risk appetite improved after the US federal government reopened after a 43-day shutdown, while recent gains driven by declining interest rate cut expectations continued to fade.

The US government is scheduled to reopen on Thursday after its longest-ever shutdown, which disrupted air traffic, cut food aid for low-income Americans, and left more than 1 million workers without pay for more than a month.

"Risk has responded positively to the shutdown news, and the dollar has been a bit bid," said Sarah Ying, chief FX strategist at CIBC Capital Markets in Toronto. The US currency also strengthened after Federal Reserve Chairman Jerome Powell said last month that a rate cut at the US central bank's December meeting was not certain, but the momentum behind that trade has faded, Ying said.

"There's been a bit of a mean reversion to the Fed's momentum disappearing," she said. Traders are now awaiting key data delayed by the government shutdown to provide fresh clues about the health of the economy and the Fed's interest rate policy.

Fed policymakers are divided on whether to continue cutting interest rates as inflation remains relatively high. San Francisco Fed President Mary Daly said Thursday that the risks to the Fed's two objectives have been balanced because the Fed has already cut rates twice this year, although it is slightly tilted towards labor market risks. Fed fund futures traders are pricing in a 52% chance of a December rate cut.

DOLLAR INDEX FALLS TO 99.22

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.26% to 99.22, with the euro rising 0.28% to $1.1624, its highest since October 30.

Against the Japanese yen, the dollar weakened 0.23% to 154.43. The U.S. dollar hit a nine-month high against the Japanese currency on Wednesday after Japanese Prime Minister Sanae Takaichi expressed her government's preference for low interest rates and called for close coordination with the Bank of Japan.

Japanese Finance Minister Satsuki Katayama also issued a fresh verbal warning about the yen's weakening near 155 per dollar, noting "one-sided and rapid movements in the foreign exchange market." The yen on Thursday hit its lowest level against the euro since 1999, when the single currency was introduced.

The yen's weakness could force the Bank of Japan (BOJ) to take action, leading to an interest rate hike next month, although traders see only a 22% chance of a quarter-point rate hike in December.

In Europe, the pound strengthened despite data showing the UK economy barely grew in the third quarter of this year, partly due to a cyberattack in September. The pound was last up 0.32% at $1.3172. Meanwhile, the Australian dollar hit a two-week high thanks to official data showing a sharp decline in the unemployment rate from a four-year high, reducing the likelihood of further interest rate cuts. In cryptocurrencies, Bitcoin rose 0.67% to $102,557. (alg)

Source: Reuters