By Samuel Indyk and Ankur Banerjee
LONDON (Reuters) -The U.S. dollar was near its highest in more than two months against major currencies on Tuesday, spurred by bets that the Federal Reserve will continue with modest interest rate cuts in the near term.
A series of US figures show the economy is resilient, while inflation rose slightly more than expected in September, prompting investors to scale back bets on further big rate cuts from the Fed.
The US central bank started its easing cycle with an aggressive 50 basis point move at its last policy meeting in September, but market expectations have shifted to a slower pace of cuts, boosting the dollar.
Traders are now pricing in an 89% chance of a 25 bp cut in November, with a total easing of 45 bp priced in for the year.
The , which measures the US currency against six rivals, stood at 103.19, just below 103.36, its highest level since August 8 on Monday, after influential Fed Governor Chris Waller called for “more caution” on rate cuts . forward.
Fed repricings “have been the main driver of the dollar’s recovery, especially relative to other central banks,” said Francesco Pesole, currency strategist at ING.
“Waller’s comments contributed to the stronger dollar this week,” Pesole added.
The euro remained in the background, reaching its lowest level since August 8 at $1.0885, ahead of the European Central Bank’s policy meeting on Thursday, where the central bank appears poised to implement a successive rate cut, a step that seemed unlikely at the last meeting in September.
The pound bought $1.3075 after British labor market data showed wages grew at their slowest level in more than two years in the three months to August, a pace that should allow the Bank of England to cut interest rates next month. decrease.
Expectations that the BoE would remain on a gradual rate-cutting path relative to its peers – the Fed and ECB – had supported the pound’s outperformance this year, but shifting bets have pushed it lower in recent weeks, with the pound more than 2 % decreased. against the dollar for the month.
“Slowing wages should be the key takeaway from current labor market data,” said Jefferies economist Modupe Adegbembo, who expects a quarter-point cut next month.
THE WEAKNESS OF THE YEN LESS
The rise of the US currency has pushed the yen back towards 150 per dollar, especially after a dovish shift in rhetoric from Bank of Japan Governor Kazuo Ueda and surprising opposition to further rate hikes by new Prime Minister Shigeru Ishiba.
That has raised doubts about when Japan’s central bank will tighten policy next, with a slim majority of economists in a Reuters poll expecting the BoJ to refrain from raising rates this year.
However, the yen was slightly stronger in early European trading at 149.07 per dollar, after falling to 149.98 on Monday, its weakest level since August 1. The yen has fallen 3.7% this month.
Oil-exporting currencies weakened after prices plunged following media reports that Israel was unwilling to attack Iranian oil targets, easing fears of a supply disruption in the Middle East.
The Norwegian krone fell about 0.4% against both the euro and the dollar, while the Canadian dollar fell 0.1%.
Meanwhile, the Australian dollar fell 0.2% to $0.6710, while the New Zealand dollar fell 0.2% to $0.6083.
both onshore and offshore, weakened to a one-month low against the dollar on Tuesday. [CNY/]