Stefano Rebaudo
(Reuters) – The safe-haven dollar edged lower on Thursday as risk appetite rose, with traders focusing on speeches by the Federal Reserve's top policymaker and economic data due later in the day for clues about the pace of interest-rate cuts.
Meanwhile, the Swiss franc strengthened after the Swiss National Bank cut interest rates by 25 basis points. Futures markets and some analysts had expected a further cut of 50 basis points after the Federal Reserve did the same last week.
European and Asian stock markets extended their China-led gains, boosted by optimism over China's aggressive stimulus measures and news that further aid packages are under discussion.
“The forex market these days is all about the direction of monetary policy from the Fed and US economic data,” said Nick Andrews, forex strategist at HSBC.
The dollar rebounded sharply from a 14-month low overnight after it fell sharply on Tuesday after data showed U.S. consumer confidence fell the most in three years in September amid growing concerns about the labor market, raising expectations of a Fed interest rate cut.
“The Beijing stimulus lifted markets on a normally quiet day ahead of the U.S. data release,” said Matt Simpson, senior market analyst at City Index.
The dollar index against the euro, pound, yen and three other major currencies was down 0.20% to 100.73 after rising 0.57% on Wednesday, its biggest one-day gain since June 7.
Mark Haefele, chief investment officer at UBS Global Wealth Management, expects the dollar to weaken as the Fed cuts interest rates faster than other countries.
Following the SNB's decision, the Swiss franc rose 0.4% against the dollar to 0.8468 and 0.25% against the euro to 0.9442.
Before the announcement, markets were pricing in a 55% chance of a 25 basis point cut.
Swiss National Bank President Thomas Jordan said the central bank is ready to cut interest rates again, acknowledging that the recent strength of the Swiss franc is creating difficulties for exporters.
“This 25 basis point cut is the most dovish yet,” said Charlotte de Montpellier, senior economist at ING.
“Not only has the SNB made it clear that further rate cuts may be necessary, but it has also significantly revised down its inflation forecasts.” Later on Thursday, Fed Chairman Jerome Powell will deliver a pre-recorded speech at a conference in New York, and New York Fed President John Williams will also speak. Boston Fed President Susan Collins, Fed Governors Michelle Bowman and Lisa Cook will also speak at various other venues.
Weekly U.S. jobless claims figures will come under intense scrutiny as the Federal Reserve shifts its focus from inflation to employment.
The euro rose 0.13% to $1.1148, down from $1.1214, its highest since July last year.
Some analysts said an improving outlook for Chinese demand following the announcement of the stimulus package was being reflected in expectations for the German and wider European economies.
The yen hit a three-week low of 145.04 yen per dollar and was last trading at 144.56 yen.
Investors were closely watching political developments as the Liberal Democrats are due to elect a new leader on Friday and the winner is set to become prime minister as the party has a majority in parliament.
If Sanae Takaichi wins, she will likely have the greatest impact on the yen's movements as she supports maintaining the Bank of Japan's accommodative policy and supporting a weaker yen.
“One of the reasons the yen has weakened slightly is the uncertainty surrounding the LDP leadership election which starts tomorrow, which could be quite reflationary if Takaichi wins,” HSBC's Andrews argued.
MUFG estimated a 20% chance of Takaichi Sanae winning and a 45% chance of Koizumi Shinjiro winning, adding that it was unlikely any one candidate would win a majority in the first round of voting.
Minutes from the Bank of Japan's July meeting, when it raised short-term interest rates, showed policymakers were divided on how quickly the central bank should raise rates further.
The Australian dollar rose 0.75% to $0.6873, recovering after falling 1% from a 19-month high of $0.6908 on Wednesday. [AUD/]
China's yuan rose 0.46 percent to 7.0 per dollar in offshore trading after slipping on Wednesday from 6.9952 per dollar, its highest since May last year.
(Reporting by Stefano Rebaudo, Lei Wee and John Revill; Editing by Sam Holmes, Christopher Cushing and Emilia Sithole Matarese)
