By Ankur Banerjee
SINGAPORE (Reuters) – The dollar clung to seven-week highs against major currencies on Tuesday as investors mulled the outlook for U.S. interest rates after a strong jobs report last week ruined bets. of large rate cuts, while rising tensions in the Middle East affected risk sentiment.
Traders have dramatically changed their expectations for monetary easing from the Federal Reserve this year.
Markets are no longer fully pricing in a rate cut in November and are pricing in an 86% chance of a 25 basis point (bp) reduction, the CME FedWatch tool showed. Only 50 basis points of easing are priced in for December, down from more than 70 basis points just a week earlier.
That has kept the dollar ahead and hitting a multi-week high against the euro, sterling and yen.
The , which measures the US unit against its main rivals, last hit 102.41, just below the seven-week high of 102.69 it hit on Friday.
A shallower track record of cuts by the Federal Reserve, along with strong data and the prospect of a “no landing” scenario have helped support the dollar, said Kieran Williams, head of Asia currencies at InTouch Capital Markets.
“While the USD has room to strengthen from here, given the aggressive post-FOMC repricing, other catalysts may be necessary.”
St. Louis Federal Reserve Bank President Alberto Musalem said Monday that he supports further interest rate cuts as the economy moves on a healthy path, while noting that it is appropriate for the central bank be cautious and do not overdo monetary easing.
“Further gradual reductions in the policy rate are likely to be appropriate over time,” the official said.
The benchmark index remained above 4% in Asian hours, having touched the level on Monday for the first time in two months as traders reduced bets on large rate cuts. [US/]
Investors’ attention this week will be on the inflation report due out on Thursday, as well as the minutes of the Federal Reserve’s September meeting due out on Wednesday. Chinese markets will also open after a week of holidays.
China’s strengthened slightly to 7.0594 per dollar in early trading.
The euro was trading at $1.098175 in early trading, not far from the seven-week low of $1.09515 it hit last week. The pound was trading at $1.3095, near the more than three-week low of $1.30595 hit on Monday.
The yen strengthened slightly to 147.795 per dollar in early trading, having also fallen to a seven-week low of 149.10 on Monday as traders contemplated the interest rate path the Bank of Japan is likely to take in the near future. term.
New Japanese Prime Minister Shigeru Ishiba surprised markets last week when he said the economy was not prepared for further rate hikes, an apparent about-face from his previous support for the BOJ to dismantle decades of extreme monetary stimulus. .
Those comments pushed down the yen and have raised questions about how aggressive the BOJ would be in raising rates.
In other currencies, the Australian dollar strengthened slightly and settled at $0.6768.
The New Zealand dollar rose 0.3% to $0.6144 ahead of Wednesday’s policy decision. A majority of economists in a Reuters poll last week said the Reserve Bank of New Zealand will cut the interest rate by 50 basis points.