(This Sept. 13 story has been refiled to remove Mellon’s BNY name in paragraph 8.)
By Gertrude Chavez-Dreyfus and Chibuike Oguh
NEW YORK (Reuters) – The U.S. dollar fell to its lowest level in nearly nine months against the Japanese yen on Friday after media reports rekindled speculation that the Federal Reserve could cut interest rates by 50 basis points at its policy meeting next week.
Analysts said reports late Thursday in the Wall Street Journal and Financial Times that a 50 basis point rate cut remained an option, and comments from a former Fed official calling for a big cut, had caused a shift in market expectations.
The U.S. interest rate futures market priced in a 51% chance of a 50 basis point rate cut by the Fed at the end of its two-day policy meeting on Wednesday, up from about 15% early Thursday. Futures traders were also pricing in a 117 basis point cut for 2024, up from 107 basis points in the previous session.
Brad Bechtel, global head of foreign exchange at Jefferies in New York, said media reports had brought the possibility of a 50 basis point rate cut back to the market after fresh inflation data reinforced expectations of a 25 basis point rate cut by the Fed. “So we’re seeing some pullback in positions that were looking for a 25 basis point rate cut,” he said.
In afternoon trading, the dollar fell 0.66% to 140.855 yen, after earlier falling to 140.285 yen, its lowest since Dec. 28. For the week, it fell 1%.
Meanwhile, the euro rose 0.08% against the US dollar to $1.1083.
The European Central Bank cut interest rates by 25 basis points on Thursday, but bank president Christine Lagarde played down expectations of another cut in borrowing costs next month. The euro’s gains pushed the single currency down 0.08% to 101.08.
“This increased likelihood of a more accommodative Fed policy has pushed the dollar lower and pushed a lot of other currencies higher,” said John Felice, foreign exchange and macro strategist at BNY in Boston.
The dollar pared losses after data showed U.S. consumer sentiment improved in September amid falling inflation.
The University of Michigan’s preliminary reading of overall consumer sentiment came in at 69.0 this month, compared with a final reading of 67.9 in August. Economists polled by Reuters had forecast a preliminary reading of 68.5.
US economic data this week appears to support the case for a 25 basis point interest rate cut next week, with a measure of consumer price inflation, which strips out volatile food and energy prices, rising more than expected in August.
But former New York Fed President Bill Dudley added to speculation Friday about a 50 basis point rate cut, saying there was a strong case for such a move and that rates were currently about 150 to 200 basis points above the neutral rate for the U.S. economy, where policy is neither restrictive nor accommodative. “Why not just get started?” he said.
The euro is “targeting $1.11 again after the combined support of an insufficiently hawkish ECB and increasingly hawkish bets on the Fed,” said Francisco Bisol, currency strategist at ING.
Sterling was down 0.01% at $1.31235, having touched a one-week high. The Bank of England is expected to keep its key interest rate at 5% next week after starting its rate-cutting programme with a 25 basis point cut in August.
The dollar fell 0.38% against the Swiss franc to 0.84780 francs.
Investors are also awaiting the Bank of Japan’s interest rate decision next Friday, when it is expected to keep its short-term interest rate target steady at 0.25%.
Bank of Japan board member Naoki Tamura said on Thursday the central bank should raise interest rates to at least 1% in the second half of the next fiscal year, but added that it would likely do so slowly and in stages.
“The Bank of Japan is seen as going in a different direction than the US Federal Reserve – in a completely opposite direction,” Felice said, adding that whether and when the Bank of Japan will raise interest rates remains an open question.
Show currency
Prices at 13
September
06:19 PM GMT
Description RIC Last US Close Previous Session Percentage Change To Date Percentage Highest Bid Lowest Bid
Dollar Index 101.06 101.16 -0.1% -0.31% 101.19 100.88
EUR/USD 1.1083 1.1074 0.08% 0.41% 1.1102 USD 1.1071 USD
USD/JPY 140.87 141.76 -0.62% -0.12% 141.86 140.29
EUR/JPY 1.1083 157.04 -0.57% 0.33% 157.09 155.63
USD/CHF 0.848 0.8511 -0.35% 0.78% 0.8511 0.8445
GBP/USD 1.3126 1.3126 0.01% 3.15% $1.3158 $1.3115
USD/CAD 1.3592 1.3581 0.11% 2.56% 1.36 1.3566
AUD/USD 0.6708 0.6723 -0.21% -1.61% $0.6733 $0.6693
EUR/CHF 0.9399 0.9425 -0.28% 1.22% 0.9427 0.9371
EUR/GBP 0.8442 0.8438 0.05% -2.62% 0.8452 0.8428
New Zealand 0.6161 0.6183 -0.35% -2.49% 0.6193 0.616
dollar/dollar
USD/NOR 10.6581 10.7119 -0.5% 5.16% 10.7237 10.6323
EUR/NOR 11.8134 11.8618 -0.41% 5.25% 11.8777 11.7937
USD/SEK 10.217 10.2821 -0.63% 1.49% 10.2979 10.1892
EUR/SED 11.3246 11.3872 -0.55% 1.79% 11.4 11.303