TOKYO, Sept 26) – The dollar held firm on Thursday following its sharpest rally since early June as traders looked ahead to speeches from key Federal Reserve policymakers later in the day for clues on the pace of interest rate cuts.
The U.S. currency rebounded strongly overnight from a more than one year low to the euro and 2 1/2 year trough versus sterling.
Without an apparent catalyst for the bounce, investors seemed to take a more tempered view on just how aggressive future U.S. rate cuts would be, as Fed speakers this week failed to present a unified view on the way forward.
Fed Governor Adriana Kugler said Wednesday she “strongly supported” cutting rates by a half point earlier this month to kick off the easing cycle, but didn’t address her preferences for the pace of reductions from here.
Earlier in the week, Chicago Fed President Austan Goolsbee told lawmakers that policymakers “can’t be behind the curve” if the economy is to achieve a soft landing. In separate comments, Atlanta Fed President Raphael Bostic told Bloomberg the central bank didn’t need to be on a “mad dash” to cut rates.
“I’m not getting the feeling at this point that it’s particularly unanimous,” said Kenneth Crompton, chief rates strategist at National Australia Bank.
“It sort of feels like they’ve done their catch up. and from here it’s probably more 25s than 50s.”
Later Thursday, Fed Chair Jerome Powell delivers pre recorded remarks at a conference in New York; New York Fed President John Williams will also speak. Boston Fed President Susan Collins and Fed Governors Michelle Bowman and Lisa Cook take to the podium at various other venues.
Weekly U.S. jobless claims data will be closely watched later on Thursday, after the Fed’s pivot to pay more attention to labour markets than to inflation.
“To the extent that dramatic Fed labour market weakening is going to be an implicit part of what’s needed to support market pricing for at least one more 50 basis cut this year, it’s the best high frequency indicator we have on that,” NAB’s Crompton said.
Still, traders are expecting a second supersized 50 basis point rate cut at the Fed’s next meeting in November, though those odds edged down to 57.4% from 58.2% a day earlier, according to the CME Group’s FedWatch Tool.
The dollar index-evaluating the currency against the euro, sterling, yen and three other major peers eased 0.10% to 100.84 as of 0444 GMT, after a 0.57% jump on Wednesday, its biggest one day gain since June 7.
The euro was little changed at $1.1143, after pulling back sharply from $1.1214, a high not seen since July of last year.
Sterling was steady at $1.33425, after surging as high as $1.3430 on Wednesday for the first time since February 2022.
The yen hit a three-week low of 145.04 per dollar and last traded at 144.77.
Minutes of the Bank of Japan’s July meeting, at which the central bank increased short term interest rates, revealed that policy chiefs were divided on how quickly the bank should increase rates further.
The Aussie dollar gained 0.37% to $0.6848, after it found its footing from a sharp retreat on Wednesday from an 19 month peak of $0.6908.
The Chinese yuan rose to 7.0149 per dollar in offshore trade, also after it pulled back on Wednesday from the strongest since May of last year, at 6.9952.
The Swiss franc was little changed at 0.8498 per dollar before a policy announcement from the central bank on Thursday, when a third successive quarter-point rate cut is widely expected.
