US dollar mixed as markets digest Fed comments; yen slides
The US dollar traded mixed on Monday, as investors weighed dovish statements from Federal Reserve officials that raised expectations of an interest rate cut next month, limiting the greenback’s gains against some major currencies such as the euro and Swiss franc.
But the US currency strengthened against the yen, as investors still looked for signs of official buying from Tokyo to stem the decline in the Japanese currency. The dollar also strengthened slightly compared to commodity currencies such as the Australian and New Zealand units.
Volume was thinner than usual due to the holiday in Japan.
In mid-morning trading, the euro rose 0.1% against the dollar to $1.1527, which sent the dollar index down 0.1% to 100.17. Against the Swiss franc, the dollar fell 0.2% to 0.8074 franc.
Fed Governor Christopher Waller said on Monday that available data showed the U.S. job market remains weak enough to warrant another quarter-point rate cut at the U.S. central bank’s Dec. 9-10 policy meeting.
His remarks followed remarks by New York Fed President John Williams on Friday who said the US central bank could still cut interest rates “in the near term” without jeopardizing its inflation targets.
Following their comments, Fed fund futures have raised the odds of a quarter-point rate cut next month to a nearly 80% chance, from 30% before their statement, according to CME’s FedWatch tool.
However, some of the Fed’s regional governors have argued for holding off on further easing until there is clear evidence that inflation is on track to reach the Fed’s target of 2% from still rising levels.
“While the odds of a rate cut next month increased today, this appears to have little impact on the dollar, meaning it remains an open question,” said Marc Chandler, chief market strategist at Bannockburn Global in New York.
The market is also bracing for potential catalysts, including the release of US retail sales and producer prices data due later this week.
YEN IS HARD, STERLING IS FLAT
The yen on Monday was the worst performer against the dollar, which rose 0.4% to 157.07 yen, not far from a 10-month high reached last week at 157.90. .
Japan’s currency has slumped due to a combination of looser fiscal policy and some of the world’s lowest interest rates, prompting traders to ask whether the Japanese government can take action to stop their currency weakening further.
The yen, however, managed to strengthen last Friday, bouncing off 10-month lows after Finance Minister Satsuki Katayama stepped up warnings of verbal intervention to stem the currency’s decline.
Traders see risks of intervention between 158 and 162 yen per dollar, with light trading on Thanksgiving later this week an opportunity for authorities to take action.
Japan can actively intervene in the currency market to reduce the negative impact of a weaker yen on the economy, Takuji Aida, a private sector member of the government’s top panel, said in a television program on public broadcaster NHK on Sunday.
Nick Rees, head of macro research at Monex Europe, said intervention would help slow the dollar’s rise against the yen but would not derail it completely, given the dynamics underlying the move were unlikely to change any time soon.
In other currency pairs, sterling was slightly weaker at $1.3085 against the dollar ahead of the budget announcement on Wednesday. Finance Minister Rachel Reeves is seeking a balance between spending to support weak growth and showing investors that the UK can meet its fiscal targets.
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Source: Reuters (Reporting by Gertrude Chavez-Dreyfuss in New York and Ozan Ergenay in London; Additional reporting by and Tom Westbrook in Singapore; Editing by Shri Navaratnam, Amanda Cooper, Gareth Jones and Chizu Nomiyama)
