Investing.com – The U.S. dollar fell on Monday, while the euro and the British pound rose, ahead of the expected start of the Federal Reserve’s interest rate cutting cycle later this week.
At 04:35 ET (08:35 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was down 0.4% at 100.357.
Will there be a big Fed rate cut?
The European Central Bank concludes its final policy-setting meeting on Wednesday, and is widely expected to begin cutting interest rates from the 5.25%-5.5% range that has been in place for the past 14 months.
Federal Reserve officials have widely indicated the possibility of interest rate cuts, with U.S. interest rates falling last month to their lowest level since February 2021.
However, there is still some uncertainty about the size of the cut, with the dollar falling sharply on Friday after media reports once again fueled speculation that the Federal Reserve could implement a large 50 basis point interest rate cut.
Fed funds futures showed traders pricing in a 59% chance of a 50 basis point rate cut at the September meeting, according to CME FedWatch.
U.S. Treasury yields fell again on Monday in anticipation of a rate cut, with benchmark 10-year Treasury yields down about 30 basis points in about two weeks.
The Fed’s interest rate decision will be followed by a post-meeting press conference, where Fed Chairman Jerome Powell could offer hints about the future outlook for interest rates and the economy.
Euro and pound rise
In Europe, the pound rose 0.4% to 1.1115, with demand for the single currency despite the European Central Bank cutting interest rates by 25 basis points last week.
European Central Bank President Christine Lagarde has dampened expectations of another cut in borrowing costs next month, saying the path of interest rates is not predetermined and that the central bank will decide rates meeting by meeting, without any prior commitments.
Chief Economist and Vice President of the European Central Bank speak at events on Monday.
The pound rose 0.4% against the US dollar to 1.3173, ahead of the final monetary policy meeting on Thursday.
The Bank of England is expected to keep its key interest rate at 5%, after starting to ease monetary policy with a 25 basis point cut in August.
“The pound continues to trade strongly. Dollar weakness remains the dominant theme and we have yet to see much news to point to a downside for sterling,” analysts at ING said in a note.
Yen rises ahead of BOJ meeting
The yen rose 0.8% against the dollar to 139.76, rising sharply to its highest level in more than eight months, ahead of the European Central Bank’s meeting later this week.
The Bank of Japan’s interest rate decision on Friday is expected to keep its short-term interest rate target steady at 0.25%.
However, BOJ board members indicated they were keen to see interest rates higher, which would likely lead to the unwinding of more yen-funded carry trades.
Gold prices fell to a two-week low of $7.0930, with regional trading volumes muted due to market holidays in Japan, China and South Korea.
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