Written by Amanda Cooper and Brigid Riley
LONDON/TOKYO (Reuters) – The dollar rose broadly on Tuesday after Federal Reserve Chairman Jerome Powell pushed back on expectations of another huge interest rate cut.
After two volatile days, the yen has stabilized near the mid-range against the dollar over the past month as traders assess the future direction of Japan's next prime minister and his cabinet.
The Australian dollar inched towards Monday's highs on strong domestic retail sales, while the euro was expected to fall for the first time in three days after inflation data raised the possibility of a rate cut this month.
In the United States, Chairman Jerome Powell adopted a more hawkish tone in a speech at a conference in Tennessee, saying the world's largest central bank was likely to remain committed to quarter-point rate cuts.
“This is not a committee that feels like it's in a hurry to cut interest rates quickly,” he said.
Traders remain confident the Fed will cut rates again at its next policy meeting in November, but CME Group (NASDAQ:) said its forecast for a rate cut was 50 basis points (bps) lower than the previous day's rate of 53.3%. It was 35.4%. FedWatch Tool.
Matt Simpson, senior market analyst at Citi Index, said: “The door to a 50bp rate cut is not closed, because weaker economic data would justify a rate cut.''But Mr. Powell said the market “We clearly think that investors are overly excited about future rate cuts.''
The Fed began its easing cycle last month with a bigger-than-expected 0.5 percentage point cut.
Powell's speech comes ahead of this week's release of U.S. economic data, including the Institute for Supply Management's manufacturing index later on Tuesday and the non-manufacturing report on Thursday, which could be important on Friday. The latest monthly employment statistics have been released.
Simpson said if ISM's non-manufacturing and employment data continue to beat expectations this month, the dollar could see a “reasonable rebound” before eventually returning to a downward trajectory.
It fell nearly 1% in September, and on Monday marked a third consecutive month of decline, rising 0.4% to a one-week high of 101.11.
The dollar rose 0.1% to 143.57 yen, after surging from a high of 146.495 yen on Friday to a low of 141.65 yen on Monday.
Markets see New Japan Prime Minister as a financial hawk
Shigeru Ishiba, who is expected to be confirmed as Japan's new prime minister later on Tuesday, is seen by markets as a monetary policy hawk, despite a recent tone-down in his rhetoric about the need for policy normalization.
He won the leadership race on Friday in one of the closest elections to date and is now calling for a snap election on October 27 to unify the party.
Minutes of the Bank of Japan's September meeting on Tuesday revealed that there was little impact on markets, with policymakers discussing the need for vigilance against rising short-term interest rates.
“Ultimately, our view on the BOJ remains more hawkish than the market is pricing in 13 basis points of tightening over the next three meetings. Even if it's more biased toward the yen's upside, this is due in particular to the Bank of Japan's risks.'' Francesco Pesole, a strategist at ING, said: “The corrective rally in the dollar is preparing to argue that the yen's underperformance will continue for many months. It has not been done,” he said.
The euro hovered near a one-week low after Germany's inflation rate fell to its lowest level since early 2021, raising expectations for further interest rate cuts this month.
The euro fell 0.4% on the day to $1.1085, near its lowest since September 19.
“Recent developments strengthen our confidence that inflation will return to target in a timely manner,” European Central Bank President Christine Lagarde told parliament, adding that this should be reflected in policy decisions on October 17. .
Deutsche Bank on Tuesday said it had expected the next rate cut to be in December, but it has changed its call on the ECB and will cut rates further in October.
The stock fell 0.12% on the day to $0.68995, not far from Monday's 1-1/2-year high of $0.6943, after a stronger-than-expected recovery in Australian retail sales in August. Ta.
It traded 0.65% lower at $0.63105.
