By Amanda Cooper and Brigid Riley
LONDON/TOKYO (Reuters) – The U.S. dollar rose broadly on Tuesday after Federal Reserve Chairman Jerome Powell pushed back against bets on more big interest rate cuts.
The yen remained near the middle of its range against the dollar last month, after two volatile days as traders assessed Japan’s incoming prime minister and his cabinet.
The Australian dollar headed towards Monday’s high on positive domestic retail sales data, while the euro headed for a third daily loss after inflation data made a rate cut this month more likely.
In the United States, Powell took a more hawkish tone in a speech at a conference in Tennessee, saying the world’s largest central bank was likely to stick with rate cuts of a quarter of a percentage point in the future.
“This is not a committee that feels like it’s in a hurry to cut rates quickly,” he said.
Traders remain confident that the Fed will cut again at its next policy-setting meeting in November, but have revised down expectations for a 50 basis points (bps) cut to 35.4% from 53.3% a day earlier, according to FedWatch from CME Group (NASDAQ:). Tool.
“The door is not yet closed on a 50 basis point cut, because if economic data declines then such a cut is justified. But Powell clearly thinks markets are overly enthusiastic” about the coming cuts, said Matt Simpson, senior market analyst at City Index.
The Fed started its easing cycle last month with a bigger-than-expected cut of half a point.
Powell’s speech came ahead of a tough week of U.S. data, including the Institute for Supply Management’s manufacturing index later on Tuesday and Thursday’s non-manufacturing report, followed by Friday’s potentially crucial monthly jobs data.
If the ISM report on non-manufacturing and employment comes back above expectations this month, the dollar could make a “quite a jump” before eventually resuming its downward trajectory, Simpson said.
The price rose 0.1% to 100.87 as of 0403 GMT, after moving 0.3% higher on Monday, as it fell for the third consecutive month on month, with a decline of almost 1% in September .
The dollar rose 0.3% to 144.01 yen, following a rapid rise from 146.495 yen on Friday to 141.65 yen on Monday.
Shigeru Ishiba, who will be confirmed as Japan’s new prime minister later on Tuesday, is seen by markets as a monetary policy hawk despite a recent softening of rhetoric on the need for policy normalization.
He won his party’s leadership vote on Friday in one of the tightest races ever, and is now trying to unite the party after calling an early general election for October 27.
Minutes of the Bank of Japan’s (BOJ) September meeting showed on Tuesday that policymakers discussed the need for caution over short-term rate hikes, which had little impact on the market.
“Ultimately, our view on the BOJ remains more aggressive than market price for a 13 basis point tightening over the next three meetings, so even if the tactical picture turns more to the upside for the dollar/yen – not least because of the risks of A higher correction in the dollar rate – we are not ready to argue for persistent, multi-month underperformance of the yen,” said ING strategist Francesco Pesole.
The euro was trading close to Monday’s one-week low after German inflation fell to its lowest level since early 2021, fueling speculation of another rate cut this month.
The euro was modestly lower at $1.1124, after falling to $1.1113 in the previous session.
European Central Bank President Christine Lagarde told parliament: “the latest developments reinforce our confidence that inflation will return to target in a timely manner,” and this should be reflected in the October 17 policy decision.
Deutsche Bank changed its call from the ECB on Tuesday, saying it now saw another cut in October, compared to an earlier forecast for another cut in December.
The index was flat at $0.6914, holding close to the 1-1/2-year peak of $0.6943 it reached on Monday after Australian retail sales rebounded more than expected in August.
The stock traded at $0.6321, down 0.5%.
