He global dollar fell on Monday as investors once again turned to the yen awaiting a more aggressive rate cut from the United States Federal Reserve (Fed) this week.
He dollar was trading at 140.01 yen at 11:40 GMT, after falling as low as 139.58 yen earlier in the session. This represented a further drop from the late December low of 140.285 hit on Friday to levels last seen in July 2023.
He dollar indexwhich measures the currency against six peers, was down 0.3 percent at 100.69, Reuters reported.
The meeting of the Federal Reserve Tuesday and Wednesday are the highlight of a very busy week in which the Bank of England and the Bank of Japan will announce monetary policy decisions on Thursday and Friday, respectively.
Statements from Fed officials and data releases over the past month have had markets shifting odds around the size of this week’s rate cut, debating whether the U.S. central bank will avoid weakness in the labor market with aggressive cuts or take a slower, wait-and-see approach.
“It’s all about the Fed and the question of whether it will do a big cut of 50 basis points or a smaller one of 25 basis points,” said Niels Christensen, chief analyst at Nordea“That’s why the dollar is weaker across the board,” he explained.
The Treasury bond yields have been falling in the run-up to the Fed’s highly anticipated meeting, particularly as the odds rise that it will turn hawkish with a half-point rate cut.
Benchmark 10-year yields have dropped 30 basis points in about two weeks. Two-year yields, more closely tied to expectations of inflation, have fallen 10 basis points. monetary policywere around 3.55%, down from about 3.94% two weeks ago.
Attractive yen
Selling dollars for yen has been the cleanest trade for investors looking to take advantage of falling Treasury yields, said Chris Weston, head of research at Australian online broker Pepperstone.
“While speculators are shorting and taking advantage of this decline, it is clear that we need to align ourselves with this trend,” he said.
Investors are also keeping an eye on the Bank of Japan’s interest rate decision on Friday, when it is expected to hold its short-term rate steady at 0.25 percent after raising it twice this year.
“We expect higher rates in Japan and lower rates in the US, so the interest rate differential favors a stronger yen versus the dollar,” Nordea’s Christensen told Reuters.
Interest rates move in Europe
The pound sterling rose 0.6% to $1.3199, while the euro It rose 0.4% to $1.1120.
He European Central Bank (ECB) cut interest rates by 25 basis points last week, but its president, Christine Lagardelowered expectations of another cut in borrowing costs next month.
The ECB will almost certainly wait until December before cutting interest rates again to be sure it is not making a policy mistake by easing them too quickly, Peter Kazimir, a member of the ECB’s central bank, said on Monday. Governing Council of the ECB.
The Bank of England is expected to keep its key interest rate at 5% on Thursday, after kicking off its easing with a 25 basis point cut in August. Futures markets on Thursday were pricing in a around 38% chance of a quarter-point rate cut, compared with a 20% chance on Friday.
Source: Ambito
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