Authors: Chibuike Oguh and Samuel Indyk
NEW YORK/LONDON (Reuters) – The U.S. dollar fell to its lowest level in more than a year against the yen on Monday, on rising expectations that the Federal Reserve could make a significant interest rate cut later this week.
The Federal Reserve was widely expected to announce an interest rate cut of at least 25 basis points at the end of its September 17-18 meeting.
However, reports in the Wall Street Journal and the Financial Times last week had investors speculating that the central bank could make a more aggressive 50 basis point cut.
Futures markets are pricing in a 61% chance of a 50bp cut, down from around 15% last week.
“There’s really only one story today, and it’s a continuation of what we saw last week: the market was accepting a 25 basis point hike after the CPI, but a lot of people suspect the Fed is making up a story to get back to 50 basis points,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.
“Markets have responded appropriately. And in fact, they continue to adjust.”
The dollar was trading at 139.58 yen during peak trading hours in Asia, down further from a low of 140.285 yen reached on Friday in overdue December to levels last seen in July 2023. It was last down 0.10% at 140.695 yen.
The , which measures the currency’s value against six others including the euro, yen and pound, fell 0.31% to 100.70.
Yields on U.S. Treasury bonds are falling in the run-up to the highly anticipated Federal Reserve meeting, especially as the chances of a half-percentage-point interest rate cut raise.
Benchmark 10-year yields have fallen 30 basis points in about two weeks. Two-year yields, more closely linked to monetary policy expectations, were at about 3.571%, down from about 3.94% two weeks ago.
Investors are also eagerly awaiting the Bank of Japan’s interest rate decision on Friday. The short-term rate is expected to remain unchanged at 0.25%. Interest rates have already been raised twice this year.
Bank of Japan board members have signaled they want higher interest rates, and a narrowing spread between Japanese interest rates and those of other major currencies has helped push up the yen and unwind billions of dollars of yen-financed carry trades.
The pound rose 0.58% to $1.3200. The euro rose 0.47% to $1.1128.
The European Central Bank cut interest rates by 25 basis points last week, but ECB President Christine Lagarde dampened expectations for another cut in borrowing costs next month.
The ECB should almost certainly wait until December before cutting interest rates again to ensure it is not making a policy mistake by easing monetary policy too quickly, ECB Governing Council member Peter Kazimir said on Monday.
The Bank of England is expected to keep its key interest rate at 5% on Thursday, after starting to ease monetary policy with a 25-basis-point cut in August. Futures markets were pricing in about a 38% chance of a quarter-percentage-point rate cut on Thursday, compared with a 20% chance on Friday.
Exchange rates as of September 16, 02:15
afternoon GMT
RIC Description Last US Close Previous Session YTD Percent Change Percent Highest Bid Lowest Bid
Dollar Index 100.71 101.02 -0.31% -0.65% 101.01 100.58
Euro/Dollar 1.1125 1.1076 0.45% 0.79% 1.1138 $ 1.1077 $
Dollar/Yen 140.54 140.87 -0.18% -0.3% 140.81 139.64
Euro/Yen 1.1125 155.97 0.25% 0.47% 156.5 155.16
Dollar/Switzerland 0.8447 0.8489 -0.48% 0.38% 0.8487 0.8436
British Pound/Dollar 1.3204 1.3125 0.61% 3.77% 1.3214 $ 1.3126
Canadian Dollar 1.3588 1.3586 0.04% 2.53% 1.3602 1.3568
Australian/Dollar 0.674 0.6705 0.52% -1.15% 0.6749 USD 0.67 USD
Euro/Switzerland 0.9396 0.94 -0.04% 1.2% 0.9407 0.9384
Euro/British Pound 0.8425 0.8438 -0.15% -2.8% 0.8443 0.8424
New Zealand dollar/dollar 0.6185 0.6159 0.44% -2.11% 0.6199 0.6155
Dollar/Norway 10.6042 10.634 -0.28% 4.63% 10.6423 10.579
Euro/Norway 11.7988 11.7914 0.06% 5.12% 11.8003 11.7721
Dollar/Sweden 10.1909 10.2097 -0.18% 1.23% 10.2405 10.1654
Euro/Sweden 11.3384 11.3172 0.19% 1.92% 11.3395 11.306
