Written by Kevin Buckland and Medha Singh
TOKYO/LONDON (Reuters) – The U.S. dollar stalled near three-month highs against other major currencies on Thursday, supported by expectations that the pace of interest rate cuts by the Federal Reserve will slow, while the dollar weakened against the euro. The Japanese yen has risen from recent lows. .
The euro rose 0.2% to $1.0799, a day after falling to a nearly four-month low of $1.07612. Business activity in the euro zone slumped again last month, according to the survey, but the contraction in Germany, Europe's largest economy, was less severe than in the previous month.
“We're seeing a bit of a pullback without getting too excited,” said Kenneth Bruce, head of corporate research, currencies and rates at Société Générale. I don’t think I can do it.”
Traders are increasing bets on the potential for faster and bigger rate cuts from the European Central Bank after many policymakers warned of the risk of falling short of the bank's 2% inflation target. After two years of campaigning to cut interest rates, the tone has changed dramatically. price.
On Wednesday, ECB President Christine Lagarde struck a cautious note, saying policymakers needed to be “cautious” when deciding on policy, but her colleague Mario Centeno said the next He suggested that the central bank's board meeting could cut interest rates by 50 basis points.
Commenting on the euro outlook, Bruce said: “The risks are to the downside until the US election as we may continue to position towards Trump reflation, which means higher US yields relative to German yields. That's what I mean.''
“There is no real reason to expect this situation to end anytime soon, so EUR/USD should continue to fall in the near term, with the dollar remaining strong overall.”
The dollar index against six other currencies, including the euro and yen, stood at 104.18, not far from its overnight high of 104.57 set on July 30th.
A series of strong economic data and hawkish comments from some Fed officials have weakened expectations for U.S. monetary easing in the coming months, according to CME Group's FedWatch tool.
Expectations that the Fed will cut interest rates by a total of 50 basis points in the two remaining FOMC meetings in 2024 fell to about 68% from about 72% a week ago. Traders currently see a 29% chance of one 25 basis point cut by the end of the year, with a 2% chance of the rate remaining unchanged.
Rising market expectations that former President Donald Trump will win next month as the Republican candidate and that inflationary measures such as tariffs are likely to be introduced also provided a tailwind for the dollar.
