U.S. dollar banknotes are displayed in this illustration taken, February 14, 2022.
U.S. dollar banknotes are displayed in this illustration taken, February 14, 2022. Reuters / DADO RUVIC

The dollar fell against Asian currencies on Thursday and was nursing its sharpest fall in more than a month against majors after the U.S. Federal Reserve raised interest rates but poured cold water on the idea that even larger rises could lie ahead.

Antipodean currencies surged the most, especially the Aussie dollar, which hung on to gains it made on Wednesday when it enjoyed its biggest one-day rise in over a decade as investors dialled back bets on outsized U.S. interest rate hikes.

The dollar index toppled from near a two-decade high and fell 0.9% to 102.450 in the wake of the Fed decision. It hovered through an Asia session thinned by a holiday in Japan.

The euro rose nearly 1% and steadied at $1.0613 in Asia. The yen fought its way back to the stronger side of 130 per dollar for the first time in a week, last trading at 129.31.

Sterling rose more than 1% to $1.2637 on Wednesday but it was under pressure at $1.2548 in Asia ahead of a Bank of England (BoE) meeting where traders have fully priced a 25 basis point rate hike.

"We expect the BoE to strike a dovish tone in its communications because of the potential negative impacts of the energy price shock on the UK economy," said Commonwealth Bank of Australia analyst Kristina Clifton.

"A dovish BoE could see sterling fully erase its Fed-inspired gains in our view."

Malaysia's ringgit and the Thai baht had their best sessions of 2022.


The Fed's 50 basis point hike was the largest since 2000 as policymakers urgently tried to tamp down inflation. But Chair Jerome Powell told reporters afterward that Fed members aren't actively considering 75-bp moves in the future.

Fed funds futures rallied to take some of the edge from markets' aggressive outlook on U.S. rates, though a further 200 bps of hikes remain priced in for the rest of the year.

"The Fed simply could not (or, better, would not) hurdle the hawkish bar that the market had set," Brian Daingerfield, head of G10 foreign exchange strategy at NatWest Markets, wrote in a note to clients.

"I don't think it's hyperbole to say that today represented the first 'dovish' surprise by the Fed relative to market expectations in over six months."

The Aussie dollar's 2.2% leap was its largest since late 2011 and followed a surprisingly hawkish turn from the Reserve Bank of Australia, which began its cycle of interest rate rises with a larger-than-expected 25 bp hike on Tuesday.

The Aussie was last at $0.7233, edging a little lower from its overnight peak of $0.7265. The New Zealand dollar jumped 1.7%, its largest one-day rise in two years, to sit back above $0.65 at $0.6534.

The dollar's losses gave support to cryptocurrencies, too. Bitcoin had its best day in more than five weeks on Wednesday, rising 5% to sit just below $40,000.