Investing.com – The US dollar fell on Monday, while the euro and sterling rose, ahead of the expected start of a rate cutting cycle by the Federal Reserve later this week.
At 04:35 ET (08:35 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.4% lower at 100.357.
Big Fed cuts coming?
The ECB concludes its latest policy-setting meeting on Wednesday and is widely expected to start cutting interest rates from the 5.25%-5.5% range that has been in place for the past fourteen months.
Fed officials have widely signaled that interest rates have been cut, with the U.S. falling to their lowest level since February 2021 last month.
However, some degree of uncertainty remains about the size of the cut, and the dollar fell sharply on Friday after media reports reignited speculation that the Fed could implement a steep 50 basis point rate cut.
According to CME FedWatch, Fed fund futures showed traders pricing in a 59% chance of a 50 basis point cut at the September meeting.
U.S. Treasury yields fell again on Monday in anticipation of a cut, with the benchmark 10-year yield falling 30 basis points in about two weeks.
The Fed’s interest rate decision will be followed by a press conference after the meeting, where Chairman Jerome Powell could give hints about the further outlook for rates and the economy.
Euro, sterling rising
In Europe, it traded 0.4% higher at 1.1115, amid strong demand for the common currency despite the European Central Bank cutting interest rates by 25 basis points last week.
ECB President Christine Lagarde tempered expectations for another cut in borrowing costs next month, saying the interest rate path had not been predetermined and that the central bank would set interest rates on a meeting-by-meeting basis, without prior commitments.
Chief economist and vice president of the ECB will speak at events on Monday.
rose 0.4% to 1.3173, ahead of the latest policy-setting meeting on Thursday.
Britain’s central bank is expected to keep its key interest rate at 5% after beginning easing in August with a 25 basis point cut.
“The pound sterling continues to trade on the strong side. Dollar softness is the dominant theme and we have not received much bearish sterling news yet,” ING analysts said in a note.
The yen rises ahead of the BOJ meeting
The yen rose 0.8% against the dollar to 139.76, strengthening sharply to a more than eight-month high, with a meeting planned for later this week.
The Bank of Japan’s interest rate decision on Friday is expected to keep the short-term interest rate target stable at 0.25%.
That said, BOJ board members have indicated they would like to see higher interest rates, which would likely eliminate more yen-funded carry trades.
traded largely unchanged at 7.0930, with regional trading volumes subdued due to market holidays in Japan, China and South Korea.
