Dollar slides on expectation of less hawkish Fed as Euro hits 1-month high

The euro climbed back above parity against the dollar for the first time in a month on Wednesday after poor US economic data reinforced speculation that the Federal Reserve will slow its interest rate hikes, sending the greenback tumbling.

The European common currency rose 0.66 per cent to $1.0042, the highest since Sept. 20. Sterling rose 1.05 per cent to $1.1592, its best since Sept. 14, and the dollar also fell against the Japanese yen, sliding 0.6 per cent to 146.9.

"It's a continuation of the (dollar) sell-off that we've seen since the end of last week. Markets are anticipating a potential slowdown in the pace of Fed hiking," said Lee Hardman a currency analyst at MUFG.

"We don't think that's going to happen at the next meeting in November, but certainly by December there's a higher probability they could step down the pace to 50 basis points rather than the 75 basis points we've seen recently."

The aggressive pace of Fed tightening has sent the dollar higher.

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Fed officials have begun sounding out their desire to slow down the pace of increases soon, according to a Wall Street Journal report on Friday that caused markets to reprice.

This was reinforced by data overnight showing that US home prices sank in August as surging mortgage rates sapped demand, in the latest sign that Fed rate increases are already working to slow the world's biggest economy.

Traders and economists predict another 75 basis point increase next Wednesday, but there is a growing view that it will slow to half a point in December.

The benchmark 10-year US Treasury yield continued its descent from last week's multi-year high of 4.338 per cent, and was last down seven basis points at 4.038 per cent.

The Canadian dollar also firmed to 1.352 per US dollar, its strongest in three weeks, ahead of a Bank of Canada policy meeting at which analysts polled by Reuters expect a rate increase of 50 basis points.

That would be the second consecutive reduction in the size of rate rises after a 100 basis point move in July and 75 basis points last month.

The dollar was also weaker elsewhere, falling around 0.5 per cent on both the Norwegian and Swedish crowns , and over 1 per cent on China's offshore yuan.

The Australian dollar rose 1.24 per cent to $0.64735 as hotter-than-expected inflation data put pressure on the Reserve Bank ahead of a rate decision next week.

Cryptocurrencies extended their sharp rallies from the day before. Bitcoin was 1.2 per cent higher at around $20,300, and ether was up 3.6 per cent just above $1,500, building on Tuesday's 8.7 per cent surge.