By Chibuike Oguh and Samuel Indyk
NEW YORK/LONDON (Reuters) – The U.S. dollar fell to the lowest level in more than a year against the yen on Monday as expectations grew that the Federal Reserve could make a super-large interest rate cut later this week.
The Fed was widely expected to announce a rate cut of at least 25 basis points at the end of its September policy meeting on Wednesday.
But reports from the Wall Street Journal and the Financial Times last week led to speculation among traders that the central bank could implement a more aggressive 50 bp rate cut.
Futures markets are pricing in a 61% chance of a 50 basis point cut, up from about 15% last week.
“There’s really only one story today and that’s a continuation of what we saw last week: after the CPI, the market was comfortable with a 25 basis point rate hike, but many people suspect the Fed planted a story to get there to put 50 basis points back at the table,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.
“The markets have responded accordingly. And in fact, they continue to adjust.”
The dollar traded as low as 139.58 yen in Asia hours, its lowest level since July 2023. The dollar was last down 0.10% at 140.690 yen.
The , which measures the currency against six other currencies including the euro, yen and pound, fell 0.29% to 100.73.
“I think some of it may be exaggerated by the fact that China, Japan and South Korea are on vacation today,” Chandler added.
US Treasury yields have fallen ahead of the much-anticipated Fed meeting, especially as the chances of a rate cut increase by half a point.
The benchmark 10-year rate has fallen 30 basis points in about two weeks. The two-year yield, which was more closely linked to monetary policy expectations, fell 2.5 basis points to 3.5509%, down from around 3.94% two weeks ago.
Investors are also looking forward to the Bank of Japan’s interest rate decision on Friday, which is expected to keep its short-term target stable at 0.25% after raising rates twice this year.
BOJ board members have indicated they would like to see rates higher, and the narrowing gap between yields in Japan and other major currencies has pushed the yen higher and prompted the unwinding of billions of dollars in yen-financed carry trades.
Sterling rose 0.64% to $1.3206. The euro rose 0.42% to $1.1123.
The European Central Bank cut interest rates by 25 basis points last week, but ECB President Christine Lagarde tempered expectations for another cut in borrowing costs next month.
The ECB should almost certainly wait until December before cutting rates again to ensure it does not make a policy mistake by easing too quickly, ECB Governing Council member Peter Kazimir said on Monday.
The Bank of England is expected to keep its key interest rate at 5% on Thursday after beginning easing in August with a 25 basis point cut. Futures markets were pricing in about a 35.9% chance of a quarter-point rate cut on Thursday, compared to a 20% chance on Friday.
Bid prices in currency as of September 16, 6:09 AM
pm GMT
Description RIC Last US Close Previous session Pct Change YTD Pct High bid Low bid
Dollar index 100.73 101.02 -0.28% -0.63% 101.01 100.58
Euro/dollar 1.1123 1.1076 0.43% 0.77% $1.1138 $1.1077
Dollar/Yen 140.65 140.87 -0.13% -0.26% 140.865 139.64
Euro/yen 1.1123 155.97 0.3% 0.52% 156.67 155.16
Dollar/Swiss 0.845 0.8489 -0.49% 0.37% 0.8487 0.8436
Sterling/Dollar 1.3207 1.3125 0.65% 3.81% $1.3214 $1.3126
Dollar/Canadian 1.3588 1.3586 0.02% 2.51% 1.3608 1.3568
Aussie/Dollar 0.6743 0.6705 0.6% -1.08% $0.6749 $0.67
Euro/Swiss 0.9398 0.94 -0.02% 1.21% 0.9407 0.9384
Euro/British Pound 0.842 0.8438 -0.21% -2.86% 0.8443 0.8421
New Zealand dollar/dollar 0.6189 0.6159 0.5% -2.05% $0.6199 0.6155
Dollar/Norway 10.6053 10.634 -0.27% 4.64% 10.6423 10.579
Euro/Norway 11.7967 11.7914 0.04% 5.1% 11.816 11.7721
Dollar/Sweden 10.193 10.2097 -0.16% 1.25% 10.2405 10.1654
Euro/Sweden 11.3391 11.3172 0.19% 1.92% 11.3521 11.306
