US dollar hits more than one-year low as market eyes aggressive Fed rate cut – Yahoo Finance

September 16, 2024

Written by Chibuike Oguh and Samuel Indyk

NEW YORK/LONDON (Reuters) – The dollar fell to its lowest level against the yen in more than a year on Monday as expectations grew that the Federal Reserve would make a sharp interest rate cut this week.

The Fed was widely expected to announce a rate cut of at least 25 basis points at the end of its Sept. 17-18 meeting.

But reports in The Wall Street Journal and the Financial Times last week have fuelled speculation among traders that the central bank could implement a more aggressive rate cut of as much as 50 basis points.

Futures markets are now pricing in a 61% chance of a 50 basis point cut, up from around 15% last week.

“The story today is a continuation of last week, where after the CPI release the market was happy with a 25 basis point hike, but many suspect the Fed may have engineered it to consider a 50 basis point hike again,” said Mark Chandler, chief market strategist at Bannockburn Global Forex in New York.

“The market has responded accordingly, and in fact the market is continuing to correct.”

During Asian trading hours, the dollar fell to 139.58 yen, representing a further decline from the late December low of 140.285 yen hit on Friday to its lowest since July 2023. The dollar was last down 0.10% to 140.695 yen.

The dollar index against six currencies including the euro, yen and pound fell 0.31% to 100.70.

U.S. government bond yields have been falling ahead of the highly anticipated Fed meeting, especially as a half-point rate cut looks increasingly likely.

The yield on the benchmark 10-year Treasury note has fallen 30 basis points in about two weeks. The yield on the two-year note, which is more closely tied to monetary policy expectations, is around 3.571%, down from about 3.94% two weeks ago.

Investors are also keeping an eye on Friday for an interest rate decision from the Bank of Japan, which has raised rates twice already this year and is expected to keep its target for short-term policy rates unchanged at 0.25%.

Bank of Japan board members have signaled they want higher interest rates, narrowing the interest rate gap between Japan and other major currencies, fueling the yen's strength and unwinding billions of dollars' worth of yen-funded carry trades.

The pound rose 0.58% to $1.3200, while the euro rose 0.47% to $1.1128.

The European Central Bank cut interest rates by 25 basis points last week, but ECB President Christine Lagarde downplayed expectations of further cuts in borrowing costs next month.

ECB Governing Council member Peter Kasimir said on Monday the ECB should almost certainly wait until December before cutting interest rates again, to avoid making the policy mistake of easing monetary policy too quickly.

The Bank of England is expected to keep its key interest rate on hold at 5% on Thursday after beginning monetary easing with a 25 basis point cut in August. Futures markets were pricing in a 38% chance of a quarter-point cut on Thursday, down from a 20% chance on Friday.

Currency bid price as of 02:15 on September 16th

PM GMT

Description RIC Last US Close Price Previous Session Percent Change YTD Percent Highest Bid Lowest Bid

Dollar Index 100.71 101.02 -0.31% -0.65% 101.01 100.58

EUR/USD 1.1125 1.1076 0.45% 0.79% $1.1138 $1.1077

USD/JPY 140.54 140.87 -0.18% -0.3% 140.81 139.64

EUR/JPY 1.1125 155.97 0.25% 0.47% 156.5 155.16

USD/CHF 0.8447 0.8489 -0.48% 0.38% 0.8487 0.8436

GBP/USD 1.3204 1.3125 0.61% 3.77% $1.3214 $1.3126

USD/CAD 1.3588 1.3586 0.04% 2.53% 1.3602 1.3568

Australian Dollar 0.674 0.6705 0.52% -1.15% $0.6749 $0.67

EUR/CHF 0.9396 0.94 -0.04% 1.2% 0.9407 0.9384