Written by Uncle Banerjee
SINGAPORE (Reuters) – The dollar fell 7.7 points against major currencies on Tuesday as rising tensions in the Middle East soured risk sentiment and investors pondered the outlook for U.S. interest rates after last week's strong jobs report. It hit a weekly high.
Traders have drastically reversed their expectations for monetary easing from the U.S. Federal Reserve this year.
Markets are no longer fully pricing in a rate cut in November, with an 86% chance of a 25 basis point (bp) cut, according to the CME FedWatch tool. Only 50 bps of easing is priced in by December, down from more than 70 bps a week ago.
This has kept the dollar in good shape, surging to multi-week highs against the euro, pound and yen, but the yen weakened on Tuesday as rising geopolitical concerns drove money into safe-haven assets. We have recovered some of the losses.
The index, which measures the value of the U.S. currency against its major rivals, was at 102.38, just below Friday's seven-week high of 102.69.
Kieran Williams, head of Asia FX, said the Fed's shallower rate cuts, strong economic data and the prospect of a “no-landing” scenario in which the labor market remains hot even as inflation slows are likely to weaken the dollar. He said that this led to support for the project. In Touch Capital Market.
“The USD has room to rise from here, but other catalysts may be needed given the hawkish price revisions post-FOMC.”
St. Louis Fed President Alberto Moussallem said Monday that he supports further rate cuts as the economy continues on a healthy trajectory, but noted that it is appropriate for the Fed to be cautious and not over-easy monetary policy.
The benchmark rose above 4% in Asian time, reaching that level for the first time in two months on Monday, as traders reined in bets on a huge rate cut. [US/]
Investors' attention this week will be on Thursday's inflation report and the Fed's September meeting minutes, scheduled to be released on Wednesday.
“We do not believe the conditions are ripe for a recession, and despite the current economic slowdown, the economy is in relatively good shape,” said Steve Booth, fixed income portfolio manager at T. Rowe Price. I think there is.''
“We expect the Fed to cut rates two more times by 25 bps this year, for a total of six cuts by next year.”
Meanwhile, Chinese stock markets returned with solid gains after a week-long holiday, but a lack of clarity dampened some of the optimism surrounding the stimulus package, capping some gains.
The yuan weakened slightly due to the strong dollar, falling to 7.0635 yuan per dollar.
Elsewhere, the euro was at $1.09865, not far from last week's seven-week low of $1.09515. The pound was at $1.3094, close to Monday's more than three-week low of $1.30595.
The yen was last slightly higher at 148.07 yen to the dollar, but hit a seven-week low of 149.10 on Monday as traders weighed the direction the Bank of Japan might take in interest rates in the short term. It fell to the yen.
New Prime Minister Shigeru Ishiba surprised markets last week by saying the economy was not ready for further rate hikes, a move that echoed previous support for the Bank of Japan to ease decades of extreme monetary stimulus. It's clearly a complete turnaround.
These comments caused the yen to weaken and raised questions about how aggressively the Bank of Japan would raise interest rates.
In other currencies, the Australian dollar fell to its lowest since September 16, after the minutes of the country's central bank's latest meeting sounded slightly dovish and a rally in Chinese stocks lost momentum. ．It fell to $6,715. The stock last traded down 0.24% at $0.6742.
The New Zealand dollar was flat at $0.6127 ahead of Wednesday's monetary policy decision. A majority of economists polled by Reuters last week expected the Reserve Bank of New Zealand to cut interest rates by 50 basis points. [AUD/]
