By Karen Brettell
NEW YORK (Reuters) – The dollar extended losses on Wednesday after the Federal Reserve kept interest rates steady but opened the door to cutting borrowing costs once its next meeting takes place in September.
Fed Chairman Jerome Powell said in comments after declaring his two-day meeting that a rate cut could be on the table as early as September if inflation falls in line with expectations, growth remains reasonably strong and the labor market remains unchanged. is.
But he also said the US central bank remains data-dependent and has not made any decisions on future meetings.
“The Fed wants to let the numbers hold for a bit longer, even at the risk of falling behind the curve,” said Adam Button, chief currency analyst at ForexLive in Toronto.
Traders have fully priced in a rate cut in September, which could require pressure from the Fed to make some move then.
“Everyone in the market knows it’s priced in, the Fed knows it’s priced in, so not going against that is kind of an implicit endorsement of the market price,” Button said.
Traders also expect a second and possibly third cut by the end of the year.
The price fell to 103.92 and was last down 0.34% at 104.09. It is on track for a monthly loss of 1.7%.
The next major US economic release likely to guide Fed policy will be Friday’s government jobs report for July. Employers are expected to have added 175,000 jobs this month, according to the average estimate of economists polled by Reuters.
The ADP National Employment Report showed Wednesday that private payrolls rose by 122,000 jobs this month, below economists’ expectations for an increase of 150,000 jobs.
The Japanese yen hit a four-month high against the dollar on Wednesday after the Bank of Japan raised interest rates to their highest level since 2008 and signaled more rate hikes could follow.
The BOJ raised its target overnight interest rate from 0 to 0.1% to 0.25%, the biggest increase since 2007.
“Many market participants prepared for this as if it were a possibility, but few actually expected the BOJ to raise more than 10 basis points,” said Helen Given, FX trader at Monex USA in Washington. “This upside surprise gives the yen a huge boost.”
Japan’s rate hike came just months after the BOJ ended eight years of negative interest rates as the bank’s chief sought to dismantle his predecessor’s unorthodox policies.
Japan’s central bank also announced plans to halve monthly purchases of Japanese government bonds (JGB) to 3 trillion yen from January-March 2026.
The yen has risen since hitting a 38-year low of 161.96 against the dollar on July 3, largely boosted by interventions by Japanese authorities. Traders who settled bets short the yen and long the dollar contributed to this move.
Japanese authorities spent 5.53 trillion yen ($36.8 billion) this month on foreign exchange market interventions to boost the currency, official data showed on Wednesday.
The dollar last fell 1.87% to 149.91 yen, falling to 149.63, the lowest since March 19. The dollar is on track to post a monthly loss of 6.9% against the Japanese currency, the biggest since November 2022.
The Australian dollar fell to a three-month low of $0.6480 and was last down 0.08% at $0.6532 after a softer reading in core inflation.
Markets abandoned bets on a further rate hike from the Reserve Bank of Australia after the data.
The euro gained 0.05% to $1.082 and is expected to rise about 1% in July.
Inflation in the euro zone rose unexpectedly in July, data showed on Wednesday, although a widely watched gauge of price growth in the services sector declined.
The pound rose 0.11% to $1.2848 and is heading for a monthly gain of 1.5%.
Sterling options volatility rose to its highest level in almost a year, reflecting the level of nervousness ahead of Thursday’s Bank of England interest rate decision, with markets giving a 66% chance of a rate cut price.
In cryptocurrencies, bitcoin fell 0.77% to $65,668.
