Dollar falls against yen, hovers near 2.5-year low against pound after dovish Fed policy
By Kevin Buckland
TOKYO (Reuters) – The yen rose to a three-week high against the dollar on Monday as an emphatic policy shift by U.S. Federal Reserve Chairman Jerome Powell contrasted sharply with the unwaveringly tough tone of Bank of Japan chief Kazuo Ueda.
The US currency traded near its lowest level in 13 months against the euro. It also fell against the pound sterling to levels last seen in March 2022. Bank of England chief Andrew Bailey’s comment that it was “too early to declare victory over inflation” suggests a less aggressive stance on rate cuts than the Fed.
In the early hours of Monday, the dollar fell by as much as 0.59 percent to 143.56 yen for the first time since August 5, before last trading down 0.25 percent.
The pound remained stable at $1.3215 after rising to $1.32295 for the first time in 17 months on Friday.
Although Fed officials had been increasingly dovish in the run-up to the Fed’s annual Jackson Hole symposium, Powell “used stronger language” than his colleagues in his keynote speech on Friday, said Tapas Strickland, head of market economics at the National Australia Bank.
“Importantly, there was a conspicuous lack of caveats such as ‘step-by-step/gradual approach,'” which “was probably the reason for the excitement in the markets,” Strickland said.
In Asia, BoJ chief Ueda, who testified before parliament earlier on Friday, stuck to the script that the BoJ would need to adjust the degree of easing – in central bank jargon this means a further increase in the benchmark interest rate from a low level – and downplayed the significance of the July rate hike due to market turmoil,” Strickland said.
Many market participants had expected Ueda to adopt a less aggressive tone at the special session of parliament, which was called amid criticism that the surprise interest rate hike last month had led to a rapid unwinding of bearish yen bets and an aggressive sell-off in Japanese stocks.
The dollar index, which measures the currency against a basket of six major currencies including the euro, pound sterling and yen, languished at 100.64, just below its 13-month low of 100.60 hit late last week.
The euro was little changed at $1.1190, not far from Friday’s high last seen in July last year, even as sources told Reuters that European Central Bank policymakers were pushing for another rate cut on September 12.
Traders are unanimous in their belief that the Fed will begin its easing campaign on September 18. However, according to the CME Group’s FedWatch tool, the probability of a significant 50 basis point cut in interest rates is 36.5 percent. A week ago, the probability was 25 percent.
The Australian dollar fell 0.1 percent to $0.6790, but still remained near Friday’s high of $0.67985, its highest since July 11.
The Chinese yuan rose slightly to 7.1130 against the dollar in offshore trading, its highest level since August 5.
The leading cryptocurrency Bitcoin rose 0.9% to $64,271.60.
(Reporting by Kevin Buckland; Editing by Shri Navaratnam)
