Dollar weakens as euro and yen rise ahead of Fed rate decision
Shafaq News/ The dollar softened onFriday, with the euro and the yen on the rise as investors remained ontenterhooks ahead of next week's central bank bonanza where the focus is on theFederal Reserve and the size of its expected interest rate cut.
While the Fed is all but certain tocut rates next week, uncertainty around whether it will go with a 25 basispoint cut or 50 basis points has kept investors on the edge and weighed on thedollar.
Analysts pointed to media reportsfrom the Financial Times and the Wall Street Journal suggesting the Fed'sdecision would be a close call as one of the reasons for traders adding towagers of a big rate cut next week.
Higher U.S. jobless claims datareleased on Thursday and the Wall Street Journal article on the Fed's rate cutdilemma revived bets on a jumbo cut at the September meeting, according toChristopher Wong, currency strategist at OCBC.
Traders are pricing in a 43% chanceof the Fed cutting rates by 50 bps, up from 27% a day earlier, with a 57%probability of a 25 bps cut, CME FedWatch tool showed. Markets are pricing in113 bps of easing from three remaining meetings this year.
The European Central Bank onThursday lowered rates but ECB president Christine Lagarde dampenedexpectations for another cut next month, sending the euro higher, with thesingle currency holding onto those gains in early trading on Friday.
Besides the Fed, the Bank of Englandand Bank of Japan hold policy meetings next week.
The euro was slightly higher at$1.1083, after rising 0.57% on Thursday, leaving the dollar index , whichmeasures the U.S. currency against six rivals including the euro, at 101.11.
A slew of mixed U.S. economicreports this week have muddled rate expectations, with a report on Thursdaysuggesting that layoffs remained low even as the labour market was slowing,while other data showed producer prices rising slightly more than expected inAugust amid a rebound in the cost of services.
The data will likely not make theFed pause on cutting rates, "but it should serve as a reminder of theimportance of balancing both sides of its mandate (employment andinflation)," said Ryan Brandham, head of global capital markets, North Americaat Validus Risk Management.
"Risks remain that inflationmay not return to target as easily as everyone, including the Fed, seems toexpect."
The yen was 0.3% higher at 141.38per dollar in early trading, hovering close to the eight and half month high of140.71 it touched on Wednesday ahead of the BOJ meeting.
BOJ board member Naoki Tamura saidon Thursday the central bank must raise rates to at least 1% as soon as thesecond half of the next fiscal year but added that it would likely raise ratesslowly and in several stages.
Sterling was 0.1% higher at $1.31415ahead of the BoE meeting next week, where futures markets imply around an 80%chance that interest rates remain on hold, after a 25 basis point rate cut inAugust.
(REUTERS)
