Ankur Banerjee
SINGAPORE (Reuters) – The dollar edged up from a five-week low on Tuesday as investors weighed the possibility of a September interest rate cut following comments from Federal Reserve Chairman Jerome Powell and pondered the growing chances of former U.S. President Donald Trump being re-elected.
The Japanese yen came under pressure again as the dollar strengthened slightly, with traders wary of further intervention from Tokyo following fresh warnings from authorities.
The euro erased all of the losses it had suffered in recent weeks under pressure from uncertainty over the French election and was little changed at $1.0896, just shy of Monday’s four-month high.
Investors will be focused on the European Central Bank’s policy meeting on Thursday, where it is expected to keep interest rates on hold, but will also be watching for comments from President Christine Lagarde as she gauges the timing of the next rate cut.
Markets are pricing in a 48 basis point (bps) rate cut from the ECB this year.
Powell said Monday that three measures of U.S. inflation for the second quarter “provide some increased confidence” that the pace of price growth is returning to the Fed’s objective in a sustainable way.
The comments, likely Chairman Powell’s last until his press conference after the Fed’s scheduled meetings on July 30 and 31, have shifted expectations of a rate cut.
According to the CME FedWatch tool, the market is currently expecting 68 basis points of easing this year, with a September rate cut fully priced in.
The , an index that compares the U.S. currency to six major currencies, rose 0.12% to 104.36, not far from a one-month low of 104 hit on Monday.
“Despite the dovish leanings, Powell remained in data-dependent mode, which is understandable given the Fed’s failure to back inflation in the first quarter after turning dovish at the end of 2023,” said Charu Chanana, head of currency strategy at Saxo.
“Markets may need to wait a little longer for confirmation of expectations of a September rate cut. Growth and labor data, such as retail sales today, will be in the spotlight.”
U.S. retail sales for June, due to be released later today, are expected to have fallen 0.3% from the previous month.
A warning against the yen
In Asia, Japanese authorities continued to warn against a weak yen, with Chief Cabinet Secretary Yoshimasa Hayashi saying the country was ready to take all possible measures in the currency market.
Traders suspect Tokyo may have intervened in markets in a fresh attempt to lift the Japanese yen from a 38-year low following a weaker-than-expected U.S. inflation report last week.
Bank of Japan data showed authorities may have spent up to 3.57 trillion yen last week to support the weak yen, and markets will be watching the latest money market data to see whether Tokyo intervenes as well on Friday.
The yen was last down 0.28% to 158.45 per dollar, with other currencies also falling.
“The yen was going to fall anyway,” said Kyle Roda, senior financial markets analyst at Capital.com.
“The yen surged after weak U.S. economic data last week and the Fed’s September rate cut was priced in, along with Treasury intervention. It’s just calming down a bit now.”
Until last week, Tokyo had spent about 9.8 trillion yen ($61 billion) to defend the yen from late April to early May, according to official data, but the yen has continued to fall since then, hitting 161.96 on July 3, its lowest level since December 1986.
Cryptocurrencies soared on Monday along with shares of companies that could benefit from a Trump presidency after an assassination attempt on the Republican candidate boosted expectations that Trump would win the November election.
And Ethereum fell slightly on Tuesday.
The pound closed at a one-year high of $1.2965 on Monday, but investors are awaiting the release of UK inflation data on Wednesday for further clues about interest rate policy.
Elsewhere, the Australian dollar fell 0.2% to $0.6746 from a six-month high hit last week, while the New Zealand dollar fell 0.28% to $0.60575, its lowest in two weeks, ahead of inflation figures due on Wednesday.
