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Dollar declines as risk sentiment improved

The U.S. dollar dropped on September 23 as increased risk sentiment in global financial markets wiped out its gains in the prior session. Remarkably, the decline came after U.S. Federal Reserve flagged plans to roll back its stimulus this year.

Additionally, investors’ risk appetite rose after China, Beijing, added fresh cash into its financial system ahead of an $83.5m bond coupon by embattled Evergrande.

According to Shaun Osborne, a chief currency strategist at Scotiabank, commodity currencies are broadly higher. At the same time, havens are weaker, leaving the greenback trading lower after a firm close after the Federal Open Market Committee.

The dollar index, which measures the currency against its rivals, fell by 0.5% to settle at 93.037. The index, which had increased 0.25% on September 22, was on track for its biggest daily percentage decline in a month. However, it remains near a 10-month peak touched in late August. The offshore Chinese yuan increased against the dollar at 6.4599 per dollar.

The U.S. dollar found little support from data that revealed the number of Americans filing new claims for jobless benefits boosted last week amid a rise in California. Moreover, thursday’s improved mood raised risk-sensitive commodity currencies, with the Australian dollar growing 0.9% and the New Zealand dollar surging 1.0%.

Additionally, the S&P 500 is on track for an increase of over 1% and its biggest two-day percentage increase since late July. On September 22, the Federal Reserve announced it will likely start reducing its monthly bond purchases as soon as November. Moreover, the Fed signaled interest rate rises may follow more quickly than anticipated. Furthermore, the surge from the Fed’s report was undercut by hawkish messages from several central banks in Europe. Significantly, Norway became the first developed nation to raise rates.

Remarkably, Norway’s crown increased to a 3-1/2 month peak against the euro on Thursday. The rise came after the central bank raised its benchmark interest rate and announced more hikes are expected in the following months. The British pound continued its increase in the previous session after the Bank of England (BoE) announced two of its policymakers had voted for an early end to pandemic-era government bond-buying. Markets brought forward their expectations for an interest rate hike in March.

In cryptocurrencies, BTC continued its rebound from a sharp decline earlier this week, surging 2.42% to a 3-day peak of $44,642.78.

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