By Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) -The dollar fell on Friday after two days of gains as Federal Reserve Chairman Jerome Powell struck a cautious tone on further interest rate moves, saying the risk of too little or too much tightening is now more balanced.
The market viewed his comments as muted, with investors estimating that the Fed is likely done with raising rates.
Powell said it was clear that US monetary policy was slowing the economy as expected, with the benchmark interest rate “well into restrictive territory”. However, Powell noted that the Fed is prepared to tighten policy further if deemed appropriate.
“Powell just gave the thumbs up to the other side of the camp, believing that the Fed has done the right thing and can afford to wait without cutting, but not necessarily cutting,” says Juan Perez, trading director at Monex. USA in Washington.
The currency, which tracks against six major peers, was last down 0.2% at 103.23 after ending November on Thursday with its weakest monthly performance in a year. It’s about to end lower for the third week in a row.
Following Powell’s comments, U.S. interest rate futures on Friday were pricing in a 64% chance of a rate cut at the March meeting, up from 43% late on Thursday, according to the CME’s FedWatch tool. At the May meeting, odds of a US rate cut rose to 90%, up from around 76% the day before.
Powell’s comments came after data showed the U.S. manufacturing sector remained weak in November, confirming his comments that Fed rate hikes were starting to slow the economy.
The Institute for Supply Management (ISM) said the manufacturing PMI was unchanged at 46.7 last month. It was the thirteenth month in a row that the PMI remained below 50, indicating a contraction in output.
Softer inflation data from the US and the euro zone on Thursday reinforced expectations that central banks in both regions would finish raising interest rates, prompting traders to bet on earlier cuts next year.
Goldman Sachs said on Friday it expected the European Central Bank to make its first rate cut in the second quarter of 2024, down from an earlier forecast of a cut in the third quarter.
Mixed economic data across Europe failed to set the tone for the euro, with a survey showing that the decline in eurozone manufacturing activity eased somewhat last month but remained deeply in the red. Britain also reported a contraction in the manufacturing sector, but improved figures for the third month in a row.
The euro was last down 0.1% at $1.0874, paring losses and benefiting from a sell-off in the dollar after Powell’s comments.
Sterling rose 0.5% to $1.2699.
Against the yen, the dollar fell 0.9% to 146.855 yen. The yen was on track for a third straight week of gains, pulling it away from a near 33-year low of 151.92 per dollar reached in mid-November.
Rising expectations that the Bank of Japan will abandon its ultra-loose monetary policy next year, along with a decline in US yields, have supported the Asian currency in recent weeks.
In cryptocurrencies, bitcoin continued to strengthen, reaching an 18-month high of $38,839. It was last up 2.8% at $38,788.
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Bid prices in currency at 3:10 PM (2010 GMT)
Description RIC Last US Close Pct Change YTD Pct High bid Low bid
Previous change
Session
Dollar index 103.2400 103.4500 -0.18% -0.242% +103.7300 +103.1100
Euro/Dollar $1.0873 $1.0889 -0.13% +1.49% +$1.0912 +$1.0829
Dollar/Yen 146.8550 148.2100 -0.89% +12.04% +148.3400 +146.6600
Euro/yen 159.69 161.35 -1.03% +13.82% +161.7700 +159.6500
Dollar/Swiss 0.8694 0.8753 -0.67% -5.98% +0.8768 +0.8680
Sterling/Dollar $1.2700 $1.2627 +0.58% +5.01% +$1.2715 +$1.2615
Dollar/Canadian 1.3498 1.3559 -0.46% -0.39% +1.3564 +1.3488
Aussie/Dollar $0.6671 $0.6605 +1.00% -2.14% +$0.6675 +$0.6600
Euro/Swiss 0.9451 0.9526 -0.79% -4.49% +0.9545 +0.9450
Euro/British Pound 0.8560 0.8624 -0.74% -3.21% +0.8634 +0.8561
NZ $0.6200 $0.6155 +0.73% -2.35% +$0.6205 +$0.6152
Dollar/dollar
Dollar/Norway 10.6660 10.8270 -1.40% +8.77% +10.8050 +10.6580
Euro/Norway 11.6025 11.7648 -1.38% +10.57% +11.7760 +11.5933
Dollar/Sweden 10.3758 10.4994 -1.16% -0.31% +10.5200 +10.3579
Euro/Sweden 11.2841 11.4168 -1.16% +1.21% +11.4359 +11.2810
