(This September 13 story has been reposted to remove Mellon from BNY’s corporate name in paragraph 8)
By Gertrude Chavez-Dreyfuss and Chibuike Oguh
NEW YORK (Reuters) – The U.S. dollar fell to its lowest level in nearly nine months against the Japanese yen on Friday as media reports renewed speculation that the Federal Reserve could implement a super-sized 50 basis point interest rate cut on its highest level. policy meeting next week.
Analysts said late Thursday in reports from the Wall Street Journal and the Financial Times that a 50 basis point rate cut was still an option, and comments from a former Fed official arguing for an outsized rate cut caused a shift in market expectations.
The US interest rate futures market has priced in a 51% probability of a 50bp easing by the Fed at the end of the two-day meeting on Wednesday, up from around 15% early Thursday. Futures traders have also priced cuts of 117 basis points for 2024, compared to 107 basis points in the previous session.
The media reports introduced the likelihood of a 50 basis point pullback to the market after new inflation data reinforced expectations of a 25 basis point rate cut by the Fed, said Brad Bechtel, global head of FX at Jefferies in New York. “So you’re just seeing a little unwinding of the positions that were looking for 25 basis points.”
In late afternoon trading, the dollar fell 0.66% to 140.855 yen, after earlier falling to 140.285, its lowest level since December 28. This week it fell 1%.
The euro, meanwhile, rose 0.08% against the dollar to $1.1083.
The European Central Bank cut interest rates by 25 basis points on Thursday, but ECB President Christine Lagarde tempered expectations for another cut in borrowing costs next month. Gains in the euro pushed down 0.08% to 101.08.
“That increase in the likelihood of potentially looser Fed policy drove the dollar lower and pushed many of those other currencies higher,” said John Velis, FX and macro strategist at BNY in Boston.
The dollar pared losses after data showed US consumer confidence improved in September while inflation eased.
The University of Michigan’s preliminary consumer sentiment index stood at 69.0 this month, up from a final reading of 67.9 in August. Economists consulted by Reuters had predicted a preliminary reading of 68.5.
This week’s US economic data appeared to support the case for a typical 25 basis point cut next week, with the measure of consumer price inflation, which excludes volatile food and energy prices, rising more than expected in August.
But former New York Fed President Bill Dudley on Friday added to speculation about a 50bp Fed rate cut, saying there is a strong case for such a move and that rates are currently 150-200 basis points above the so-called neutral rate. for the US economy, where policies are neither restrictive nor accommodative. “Why don’t you just start?” he said.
The euro “is looking back at $1.11 after the combined support of a European Central Bank that is not dovish enough and the Fed’s increasing dovishness,” said Francesco Pesole, currency strategist at ING.
Sterling fell slightly 0.01% to $1.31235, weakening after nearing a one-week high. The Bank of England is expected to keep its key interest rate at 5% next week, after kicking off its easing in August with a 25 basis point cut.
The dollar fell 0.38% against the Swiss franc to 0.84780 francs.
Investors were also looking forward to the Bank of Japan’s interest rate decision next Friday, which is expected to keep its short-term interest rate target stable at 0.25%.
BOJ board member Naoki Tamura said Thursday that the central bank should raise interest rates to at least 1% in the second half of the next fiscal year, but added that it would likely do so slowly and in several phases.
“There is a perception that the BOJ is going in a different direction than the Fed – in a 180 degree opposite direction,” Velis said, adding that if and when the BOJ will raise rates remains an open question.
Currency bid
prices at 13
September
18:19 GMT
Description RIC Last US Close Previous session Pct Change YTD Pct High bid Low bid
Dollar index 101.06 101.16 -0.1% -0.31% 101.19 100.88
Euro/Dollar 1.1083 1.1074 0.08% 0.41% $1.1102 $1.1071
Dollar/yen 140.87 141.76 -0.62% -0.12% 141.86 140.29
Euro/yen 1.1083 157.04 -0.57% 0.33% 157.09 155.63
Dollar/Swiss 0.848 0.8511 -0.35% 0.78% 0.8511 0.8445
Sterling/dollar 1.3126 1.3126 0.01% 3.15% $1.3158 $1.3115
Dollar/Canadian 1.3592 1.3581 0.11% 2.56% 1.36 1.3566
Aussie/dollar 0.6708 0.6723 -0.21% -1.61% $0.6733 $0.6693
Euro/Swiss 0.9399 0.9425 -0.28% 1.22% 0.9427 0.9371
Euro/British Pound 0.8442 0.8438 0.05% -2.62% 0.8452 0.8428
New Zealand 0.6161 0.6183 -0.35% -2.49% $0.6193 0.616
Dollar/dollar
Dollar/Norway 10.6581 10.7119 -0.5% 5.16% 10.7237 10.6323
Euro/Norway 11.8134 11.8618 -0.41% 5.25% 11.8777 11.7937
Dollar/Sweden 10.217 10.2821 -0.63% 1.49% 10.2979 10.1892
Euro/Sweden 11.3246 11.3872 -0.55% 1.79% 11.4 11.303
