By Kevin Buckland and Sruthi Shankar
TOKYO (Reuters) – The dollar fell to a three-week low against the yen on Monday but halted its recent slide against most other currencies as investors assessed the possibility that the U.S. Federal Reserve will soon begin a series of interest rate cuts.
The dollar fell about 0.7% to 143.45 yen, its weakest level since August 5, and was last trading down 0.2%.
The dollar rose slightly against the euro and the pound after hitting multi-month lows on Friday when Federal Reserve Chairman Jerome Powell backed the imminent start of interest rate cuts.
Traders are also watching the fallout from escalating tensions in the Middle East that have sent oil prices up about 3%. (O/R)
In a long-awaited speech at the annual economic conference in Jackson Hole, Wyoming, Powell said “it’s time to adjust policy,” prompting traders to place bets on a 25 basis point rate cut in September and even boost their expectations for a larger 50 basis point cut.
“Powell did not say anything new but he officially confirmed some of the things that markets were expecting, including the idea of a (rate) cut and a shift in focus from inflation to the labor market,” said Sami Chaar, chief economist at Lombard Odier Bank in Geneva.
But he does not expect the dollar to fall much in the near term.
“The dollar’s significant weakness going forward means the market is not pricing in enough cuts, which I feel is a bit overdone,” Char added.
Sterling, which measures the currency’s value against a basket of six major currencies, rose to 100.82, having hit a 13-month low of 100.60 late last week. Trading activity was expected to be lighter than usual, with UK markets closed for a public holiday.
Yen remains steady
In a bid to boost the yen, Bank of Japan Governor Kazuo Ueda on Friday reiterated his intention to raise interest rates if inflation remains on track to reach the 2% target sustainably.
Many market participants expected Ueda to adopt a softer tone in a special session of parliament, which was called amid criticism that the Bank of Japan’s surprise rate hike last month helped spark a rapid decline in bets on the yen and a sell-off in Japanese stocks.
The US currency hovered near 13-month lows against the euro, and near levels last seen in March 2022 against the pound, with Bank of England Governor Andrew Bailey’s comments that it was “too early to declare victory” over inflation suggesting a less aggressive stance on interest rate cuts from the Federal Reserve.
Sterling fell 0.2 percent to $1.3190 after jumping to $1.32295 on Friday for the first time in 17 months.
European Central Bank policymakers are lining up for another interest rate cut on Sept. 12, sources told Reuters. The euro fell 0.2 percent to $1.1167, but was not far from a session high of $1.1205, last seen in July last year.
The Swiss franc rose to 0.8475 against the dollar, its strongest level since August 5.
Elsewhere, the Australian dollar fell 0.4% to $0.6768, but remained close to Friday’s peak of $0.6799, its highest since July 11.