By Karen Brettell and Amanda Cooper
(Reuters) – The dollar held on to earlier losses on Thursday after Fed Chairman Jerome Powell failed to provide strong indications that the U.S. central bank was likely to pause interest rate cuts in the near term after a widely expected 25 basis point cut.
Traders also made some profitable bets on a Donald Trump presidency after his election victory on Tuesday.
Fed policymakers noted a labor market that has “broadly eased,” while inflation continues to move toward the U.S. central bank’s 2% target.
A much stronger-than-expected jobs report for September raised expectations that the Fed might make fewer interest rate cuts, but was followed by surprisingly weak data for October. Analysts said job growth was hurt last month by hurricanes and strikes.
In Powell’s comments, “there was no indication that the Fed is considering a pause. It appears they want to get below 4% or very close before considering a pause. That’s a surprise given the strength of the economic data” , said Adam Button. , chief currency analyst at ForexLive in Toronto
Powell also said the election will not impact Fed policy in the short term, saying the U.S. central bank will not speculate on how policy will affect the Fed’s goals.
Traders are pricing in a 75% chance that the Fed will cut rates again in December, up from 69% on Wednesday, according to CME Group’s (NASDAQ:) Fed Watch Tool.
The latter fell 0.67% to 104.40. It hit a four-month high of 105.44 on Wednesday as investors priced in Trump’s policies.
Trump is expected to curb illegal immigration, impose new trade tariffs, maintain or implement new tax cuts and relax business regulations, which analysts say will boost growth and inflation.
However, the dollar weakened on Thursday after traders closed some of these positions.
“There was a lot of dollar buying in the three weeks leading up to the election and positioning was already quite long on the dollar, so I think today’s reversal is probably explained by some of these ‘red sweep’ trades that occurred before the elections were carried out, perhaps partly squared,” said Vassili Serebriakov, a currency strategist at UBS in New York.
Republicans also won the Senate majority, putting the party on track for a clean slate that would allow it to make bigger legislative changes. They are leading the race to win the House of Representatives, although no decision has been made yet.
Serebriakov added that further major gains in the US currency may be unlikely before the impact of new policies, including tariffs, are felt over the next two years.
Some market participants also speculate that tariffs could be used as a negotiating tool and that Trump will not necessarily introduce all of the policies he campaigned for.
“The market is pricing in a return of the first version of Trump, not the guy who says he’s going to implement blanket tariffs of 10 percent,” Button said.
Sterling rose after the Bank of England cut interest rates by 25 basis points, but expected British inflation and growth to pick up faster than previously expected.
It was last up 0.78% at $1.2979.
The euro rose 0.62% to $1.0794.
The single European currency has shaken off the political crisis in Germany, where the already fractious coalition led by Chancellor Olaf Scholz collapsed late on Wednesday.
The dollar fell 1.05% to 153.01 yen.
The Japanese currency is likely to be hit by a large interest rate differential with the United States after Trump’s victory. That could increase pressure on the Bank of Japan to raise rates as early as December to prevent the yen from sliding back to its lowest level in 30 years.
Sweden’s Riksbank cut rates by half a point as expected, sending the krone up 1.74% against the dollar, while Norges Bank left Norwegian rates unchanged, with the dollar plunging about 1.8% against the dollar. coin.
rose 0.74% to $76,543, after previously hitting a record high of $76,980.
Trump is expected to create a more favorable regulatory environment for the crypto industry.
