By Alun John

HONG KONG (Reuters – On Thursday the dollar fell below a peak of 16 months in early Asian trade. The U.S. currency was taking a rest while traders pondered if its recent rise might be waning.

Sterling reached $1.3491 on Wednesday, an all-time high of 1.5% against the dollar. The rise in sterling’s value was due to the Bank of England being under pressure to increase rates during its next meeting.

The dollar traded at 114.18yen against the Japanese currency. On Wednesday, the dollar stood at 114.97 yen, a 4-1/2 year high. Euro was at $1.1316. Markets are seeing the eurozone at the bottom of the rate-hike queue, hovering at $1.1316.

An increase in U.S. retail sales this week added to the dollar’s recent rally. This was after an inflation print from the United States that was strong fueled market speculations that the Federal Reserve might raise rates sometime around next year.

The has seen a rise from 93.872 (the day before the inflation data) to 96.226 (the Wednesday that marked its highest point since mid- July 2020). Last time, it was 95.798.

“The sustainability of current dollar strength over the next few weeks looks far from certain,” stated Luc Luyet FX Strategist Pictet Wealth Management.

Market expectations for the Fed have been particularly hawkish and suggest that there are limited tailwinds to the U.S. Dollar going forward.

“Furthermore, the economic growth outlook may turn more supportive of the euro as the worst of the slowdown of China’s economic activity looks mostly behind us, whereas Covid and energy import costs may prove less of an issue past winter.”

However, others saw the drop in dollar as an opportunity to purchase.

Analysts at Westpac wrote in a note that “Dips are hard to find lately but any low-95s seems like a buying opportunity.”

Oil prices also affected commodity currencies, dropping to their lowest levels in six weeks. [O/R]

Canadian Dollar was close to its 6 week low of 1.2608 US dollar a day before. The markets expect the Bank of Canada will raise interest rates in early 2019.

Australian dollars were at $0.7263 for six weeks, which was also a low.

It was around $60,000.500.