Dollar weakened as Fed rate cut expectations raise
The US dollar weakened against major currencies on Monday, while the Japanese yen reached its highest level in over a year. Market participants are increasingly anticipating a more significant rate cut by the Federal Reserve later this week.
The dollar traded at 140.01 yen at 1140 GMT, down from its previous session’s low of 140.285. This marks a further decline from the end-of-December low of 140.285, reaching levels last seen in July 2023.
The Federal Reserve’s upcoming meeting on September 17-18 is the focal point of a busy week, which also includes policy decisions from the Bank of England and Bank of Japan on Thursday and Friday, respectively.
Recent Fed speakers and data releases have led to shifting expectations regarding the size of this week’s rate cut. Markets are now more likely to see a 50-basis-point cut, with a 60 per cent probability, compared to the 15 per cent chance perceived last week.
The dollar index, measuring the currency against six peers, was down 0.3 per cent to 100.69. Treasury yields have been on a downward trend in anticipation of the Fed meeting, particularly as odds favor a more aggressive half-point rate cut.
Benchmark 10-year yields have declined by 30 basis points in approximately two weeks.
Sterling rose 0.6 per cent to $1.3199, while the euro gained 0.4 per cent to $1.1120. The European Central Bank (ECB) cut interest rates by 25 basis points last week but signaled caution about future reductions.
The Bank of England is expected to hold its key interest rate at five per cent on Thursday, following a 25-basis-point reduction in August. Futures markets are pricing in a 38 per cent chance of another quarter-point rate cut.
Bank of Canada Governor Tiff Macklem hinted at the possibility of accelerating interest rate cuts, according to a Financial Times report. The BoC has maintained its key policy rate at five per cent for over a year but has recently trimmed it three times in a row.
Attribution: Reuters
Subediting: M. S. Salama
