THE greenback hovered near its lowest levels of the year on Tuesday (Sep 17), a day before the expected start to a US easing cycle that markets are wagering may begin with an outsized rate cut from the US Federal Reserve.
The euro hovered around US$1.1132, not far from the year’s high of US$1.1201.
The yen eased to 140.71 after a jaunt to the stronger side of 140 during holiday-thinned trade on Monday.
It has fallen the most this year, so it has the most room to rally on a dovish turn from the US central bank. A sustained break of 140 would open the way to a low from last January at 127.215.
Fed funds futures have rallied to push the chance of a 50 basis point (bps) rate cut to 65 per cent, against 30 per cent a week ago. The odds have narrowed sharply after media reports revived the prospect of a more aggressive easing.
“Any sign of weakness in (Tuesday’s US economic data) is only going to reinforce market speculation that there could be a 50 bps move,” Jane Foley, senior forex strategist at Rabobank, said.
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August US retail sales and industrial production figures are expected later on Tuesday, although all eyes are on the Fed’s two-day meeting, which concludes on Wednesday.
“Regardless of which of -25 bps or -50 bps the (Fed) goes with on Wednesday, we do think that the Fed’s messaging will be ‘dovish’,” Macquarie strategists said in a note to clients.
“The USD could weaken against the majors on a very dovish tone, even with a -25 bps cut… the largest losses, if any, are still likely to be experienced against the JPY,” they said.
“That’s because the contrast between central bank outlooks will remain starkest between the Fed and the BOJ, for the time being.”
The Bank of Japan is expected to keep policy steady on Friday but signal that further interest rate hikes are coming, perhaps turning the next meeting in October into a live one.
Sterling – the best performing G10 currency this year with a 3.9 per cent rise on the dollar – has also led the charge against the dollar thanks to signs of resilience in Britain’s economy and stickiness in inflation.
It broke above US$1.32 on Monday, buying US$1.32095 at 11.05 am GMT. The Bank of England is generally expected to leave rates on hold at 5 per cent when it meets on Thursday, though markets have priced in a 39 per cent chance of another cut.
The Australian and New Zealand dollars bought US$0.67555 and US$0.6198 respectively after rallying through Monday, as traders focused more on the Fed rather than weekend signs of deepening trouble in China’s sluggish economy.
Chinese markets are closed for the Mid-Autumn Festival break until Wednesday, though the yuan was firm at 7.095 in offshore trade as it settles into a new range.
The US dollar index held at 100.7, not far from its 2024 low made last month at 100.51. REUTERS
