Dollar falling as Fed opens the door to ending tightening

The dollar fell against most major currencies on Thursday after the Federal Reserve opened the door to a pause in the tightening cycle, although risk aversion shocked markets amid a decline in US bank stocks.

On Wednesday, the Fed raised the benchmark interest rate by a quarter of a percentage point, as expected, while softening its monetary policy statement after saying it “anticipates” the need for further rate increases.

This sent the dollar broadly lower and treasury yields lower after the decision, with traders taking the comments as a signal that a peak in US interest rates has been reached.

In light of weakness in Asian trading on Thursday, the sterling pound rose 0.2% to its highest level in nearly 11 months at $1.25905, while the euro rose 0.19% to $1.1082, hovering near its latest peak in a year.

Markets in Japan remain closed for a holiday.

The dollar index fell in the latest reading of 0.14% to 101.09, after declining by more than 0.6% in the previous session.

Shares of BacWest Bank and several other US regional lenders fell in after-hours trading on Wednesday.

Cautious risk appetite supported the Japanese yen, which represents a safe haven in market turmoil, as it rose about 0.1% against the dollar to 134.56.

The risk-sensitive Australian and New Zealand dollars reversed their earlier losses during Asian trade, rising 0.3 percent each to $0.6692 and $0.6249, respectively.

All eyes are on the European Central Bank, which is expected to raise interest rates for the seventh consecutive meeting later on Thursday.