SINGAPORE, Nov 25
The U.S. dollar held steady on Tuesday while the Japanese yen remained under scrutiny as investors mulled the likelihood of the Federal Reserve reducing interest rates next month, largely following some soft comments from key policymakers.
Recently, Federal Reserve President Christopher Waller indicated that the job market may be weak enough to warrant another quarter-point cut in December. However, he pointed out that any decisions would hinge on a range of economic data that’s currently unavailable due to the federal government shutdown.
Waller’s views mirrored those expressed by New York Fed President Williams just a few days prior. According to the CME FedWatch tool, traders now see an 81% chance of a rate cut next month, a significant jump from just 42% the week before.
“There’s a keen focus on what individual Fed officials think regarding the December rate cut,” noted Chris Weston, head of research at Pepperstone. “This is understandable since the market and the Fed lack data that typically guide policy decisions. Waller’s own opinions remain somewhat uncertain, but considering the context, it seems plausible he might vote in favor of a cut.”
Interestingly, despite the buzz around potential rate cuts, the dollar’s reaction has been rather muted. For instance, the euro saw a slight uptick, trading at $1.1522, while the pound was at $1.3097. The U.S. dollar index, which gauges the dollar’s performance against major currencies, was mostly unchanged at 100.23.
Fed officials appear to be at odds regarding future movements, given the patchy data they have.
“If they decide to keep interest rates steady in December, especially with a shaky labor market and declining inflation expectations, it could lead to market discontent,” added Weston from Pepperstone.
On another note, signs of easing tensions between the U.S. and China have bolstered investor confidence. President Donald Trump revealed that he had a call with Chinese President Xi Jinping and mentioned that the relationship with China is “very strong.”
This phone call, which wasn’t disclosed until now, came after their prior meeting in South Korea, where they talked about a potential trade agreement that remains unfinished.
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Even though the dollar has shown some weakness lately, the Japanese yen is on the defensive, currently trading at 156.70 yen to the dollar. This figure is alarming as it hovers near the recent 10-month low of 157.90 yen.
Traders are hoping for some intervention from the authorities to stabilize the yen, which has weakened nearly 10 yen since early October following the dovish fiscal stance adopted by new Prime Minister Sanae Takaichi.
Efforts by officials to verbally support the yen haven’t significantly curtailed its decline. Market analysts speculate that intervention could become necessary, with potential action being likely around the 158 to 162 yen mark. However, they generally doubt the effectiveness of such interventions.
“It doesn’t seem far off from a level where direct intervention might be warranted,” noted Matthew Ryan, the head of market strategy at Every. “A rate of 160 yen to the dollar could very well be a critical threshold for Japanese authorities.”
The New Zealand dollar has also dipped over 2% this month, trading at $0.5602 amid expectations of forthcoming interest rate cuts from the Reserve Bank of New Zealand. On the same day, the Australian dollar fell slightly, sitting at $0.6454.
In the world of cryptocurrencies, Bitcoin continues to struggle, down 0.8% to $88,085.47, which is a significant drop of nearly 20% for the month.
