By Chibuike Ojoh 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 as expectations grew that the Federal Reserve could deliver a large interest rate cut later this week.
The Federal Reserve was widely expected to announce at least a 25 basis point interest rate cut at the conclusion of its September policy meeting on Wednesday.
But reports in the Wall Street Journal and the Financial Times last week have raised speculation among traders that the central bank could make a more aggressive cut of 50 basis points.
Futures markets are indicating a 61% chance of a 50 basis point rate cut, up from about 15% last week.
“There’s only one story today and it’s a continuation of what we saw last week: after the CPI the market was comfortable with a 25bp rate hike but many suspect the Fed has planted a story of a 50bp rate hike,” said Mark Chandler, chief market strategist at Bannockburn Global Forex in New York.
“The markets have responded accordingly. In fact, they continue to adapt.”
The dollar fell to 139.58 yen in Asian trading, its lowest since July 2023. It was last down 0.10% at 140.690 yen.
The dollar index, which measures the currency against six other currencies including the euro, yen and pound, fell 0.29% to 100.73.
“I think part of the price action may be overdone due to the fact that China, Japan and South Korea are on holiday today,” Chandler added.
U.S. Treasury yields fell as the highly anticipated Federal Reserve meeting neared, with the likelihood of a half-percentage-point rate cut increasing.
Benchmark 10-year Treasury yields have fallen 30 basis points in about two weeks. The two-year yield, which is more closely tied to monetary policy expectations, fell 2.5 basis points to 3.5509%, from about 3.94% two weeks ago.
Investors are also awaiting the Bank of Japan’s interest rate decision on Friday, when it is expected to keep its short-term interest rate target steady at 0.25%, having already raised rates twice this year.
Bank of Japan board members have indicated they are keen to see interest rates higher, and the narrowing gap between Japan’s interest rates and other major currencies has sent the yen higher and led to the unwinding of billions of dollars of yen-funded carry trades.
The pound rose 0.64% to $1.3206, while the euro rose 0.42% to $1.1123.
The European Central Bank cut interest rates by 25 basis points last week, but bank president Christine Lagarde tempered expectations of another cut in borrowing costs next month.
The European Central Bank should probably wait until December before cutting interest rates again to make sure it doesn’t make a political mistake by easing too quickly, European Central Bank 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 a 35.9% chance of a quarter-point rate cut on Thursday, versus a 20% chance on Friday.
Currency Request Rates on September 16 06:09
Evening GMT
Description RIC Last US Close Previous Session Percentage Change To Date Percentage Highest Bid Lowest Bid
Dollar Index 100.73 101.02 -0.28% -0.63% 101.01 100.58
EUR/USD 1.1123 1.1076 0.43% 0.77% $1.1138 $1.1077
USD/JPY 140.65 140.87 -0.13% -0.26% 140.865 139.64
EUR/JPY 1.1123 155.97 0.3% 0.52% 156.67 155.16
USD/CHF 0.845 0.8489 -0.49% 0.37% 0.8487 0.8436
GBP/USD 1.3207 1.3125 0.65% 3.81% $1.3214 $1.3126
USD/CAD 1.3588 1.3586 0.02% 2.51% 1.3608 1.3568
AUD/USD 0.6743 0.6705 0.6% -1.08% $0.6749 $0.67
EUR/CHF 0.9398 0.94 -0.02% 1.21% 0.9407 0.9384
EUR/GBP 0.842 0.8438 -0.21% -2.86% 0.8443 0.8421
NZD/USD 0.6189 0.6159 0.5% -2.05% 0.6199 0.6155
USD/NOR 10.6053 10.634 -0.27% 4.64% 10.6423 10.579
EUR/NOR 11.7967 11.7914 0.04% 5.1% 11.816 11.7721
USD/SEK 10.193 10.2097 -0.16% 1.25% 10.2405 10.1654
EUR/SED 11.3391 11.3172 0.19% 1.92% 11.3521 11.306
(Reporting by Chibuike Ojoh in New York and Vidya Ranganathan and Samuel Indyk in London; Editing by Kirsten Donovan and Aurora Ellis)
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