By Kevin Buckland and Sruthi Shankar
TOKYO (Reuters) – The dollar fell to a three-week low against the yen on Monday, but reversed its recent slide against most other currencies as investors weighed the prospect of the Federal Reserve starting soon with a series of interest rate cuts.
The dollar fell as much as 0.7% to 143.45 yen, its weakest level since August 5, and was last trading 0.2% lower.
Against the euro and sterling, the dollar strengthened slightly after hitting new multi-month lows on Friday as Fed Chairman Jerome Powell approved an imminent start of interest rate cuts.
Traders also monitored the fallout from escalating tensions in the Middle East, which sent oil prices up nearly 3%. [O/R]
In a much-anticipated speech at the annual economic conference in Jackson Hole, Wyoming, Powell said “the time has come for policy adjustment,” prompting traders to hedge their bets on a 25 basis point (bps) rate cut in September and even raise interest rates. their expectations of a huge rate cut of 50 basis points.
“Powell hasn’t said anything new, but has officially confirmed a number of things that markets were considering, including the idea of a (rate) cut and a shift in focus from inflation to the labor market,” said Samy Chaar, chief economist at Lombard Odier. Geneva.
However, he did not see the dollar falling much further in the short term.
“A massive dollar weakness would mean the market isn’t pricing in enough cuts, which I think is a bit exaggerated,” Chaar added.
The currency, which measures the currency against a basket of six major peers, rose to 100.82, off a 13-month low of 100.60 reached late last week. Trading activity was expected to be lighter than normal as UK markets were closed for a public holiday.
YEN STILL SOLID
To help the yen strengthen, Bank of Japan head Kazuo Ueda on Friday reaffirmed his intention to raise interest rates if inflation remains on track to sustainably reach the 2% target.
Many market participants expected Ueda to take a less aggressive tone during a special session of parliament called amid criticism of the BOJ. The BOJ’s surprise surge last month contributed to a rapid unwinding of bearish yen bets and an aggressive sell-off in Japanese stocks.
The US currency was hovering near a 13-month low against the euro, and was closer to levels last seen in March 2022 against sterling. more aggressive stance on rate cuts than the Fed.
Sterling fell 0.2% to $1.3190 after rising to $1.32295 for the first time in 17 months on Friday.
Sources told Reuters that ECB policymakers are backing another rate cut on September 12. The euro fell 0.2% to $1.1167, but not far from its session high of $1.1205, a level last seen in July last year.
The Swiss franc rose to 0.8475 per dollar, the strongest level since August 5.
Elsewhere, the Australian dollar fell 0.4% to $0.6768, but was not far from Friday’s peak of $0.6799, the highest level since July 11.
