By Kevin Buckland and Harry Robertson
TOKYO/LONDON (Reuters) – The U.S. dollar rose to a 10-week high against the yen on Thursday before falling as markets gained confidence in a patient Federal Reserve approach to further monetary easing, even then later a major inflation report loomed on the day.
The , which measures the currency against six key rivals including the yen, remained near a near two-month top reached overnight as traders further trimmed their bets on US interest rate cuts this year following last week’s unexpectedly strong payroll data.
The US currency touched 149.54 yen for the first time since August 2, although it was last down 0.3% at 148.82 yen. Meanwhile, the euro languished near its lowest since August 13 against the dollar, remaining flat on the day at $1.0936.
September’s consumer price index (CPI), due at 1230 GMT, is likely to show US core inflation holding steady at an annual rate of 3.2%, according to economists polled by Reuters.
Minutes from the Fed’s latest meeting, released overnight, confirmed the central bank’s focus on keeping the labor market healthy.
“The argument for a more gradual approach is certainly front and center now,” said Alvin Tan, head of Asia FX Strategy at RBC Capital Markets.
“Market momentum is toward a rethink of how much the Fed will actually cut in the coming months. I think that momentum could increase because U.S. data flow has been relatively good lately.”
Mary Daly, president of the San Francisco Fed, said late Wednesday that she is now less concerned about resurgent inflation than about damage to the labor market.
Traders have an 85% confidence that the Fed will cut rates by 25 basis points at its next policy decision on November 7, and a 15% chance that there will be no change, according to CME Group’s (NASDAQ: FedWatch Tool): ).
A week earlier, markets saw a cut as certain, with a 35% chance of another half-point cut.
The dollar index was little changed at 102.88 by 1045 GMT, about the highest since mid-August.
“There is a limit to how much more rate cutting prices can be eliminated without strong guidance from senior officials at the Federal Open Market Committee (FOMC),” said Joseph Capurso, head of international and sustainable economics at the Commonwealth Bank of Australia (OTC: ) , which predicts a 50 basis point cut in the two remaining Fed meetings this year.
The risk-sensitive Australian dollar rose 0.1% to $0.6724. Earlier, the stock rose more than 0.3% following a stock rally in top trading partner China, as the East Asian country’s central bank launched a swap program to support the stock market.
China’s Finance Ministry will hold a much-anticipated fiscal policy press conference on Saturday.
Yields fell to their weakest since September 16 at $0.6708 on Wednesday after a stimulus announcement by China’s state planner fell flat.
RBC’s Tan said he expects China to announce fiscal stimulus on Saturday that should be “sufficient to create a floor for the Chinese economy.”
He said the stimulus is likely to support the , which has fallen in recent days, and boost other Asian currencies such as the Singapore dollar and Indonesian rupiah.
