Precise Investors Editorial Team
The dollar, however, rose against the yen, as investors remained on the lookout for signs of official buying from Tokyo to stem the slide in the Japanese currency
The U.S. dollar dropped on Monday, as investors weighed dovish remarks from the country’s central bank officials that boosted expectations for a rate cut next month and limited the dollar’s upside against major currencies.
The dollar, however, rose against the yen, as investors remained on the lookout for signs of official buying from Tokyo to stem the slide in the Japanese currency.
Volume was thinner than normal due to a holiday in Japan and a holiday-thinned week in the U.S.
In afternoon trading, the euro gained 0.1% against the dollar to $1.1526, which put the dollar index down 0.1% at 100.15. Against the Swiss franc, the dollar slipped 0.1% to 0.8079 franc.
The dollar slightly extended its decline after Fed Governor Christopher Waller said on Monday that available data showed the job market remains weak enough to warrant another quarter-point rate cut at the central bank’s December 9-10 policy meeting.
His remarks followed those of New York Fed President John Williams on Friday who said that the central bank can still cut interest rates “in the near term” without putting its inflation goal at risk.
Following their comments, Fed fund futures have increased the chances of an interest rate cut of a quarter-point next month to 80%, from 30% before their remarks, according to the CME’s FedWatch tool.
Several regional Fed governors, however, argued for delaying further easing until there is clear evidence that inflation is on track to fall to the central bank’s 2% target from a still-elevated level.
There’s a bifurcation within the Fed right now – those focusing on backward-looking data versus those that are forward-looking, said Eugene Epstein, head of trading and structured products at Moneycorp in New Jersey. Certainly, interest rate fundamentals move currencies.
He noted, though, that there were times that the dollar has not moved in line with expectations – when the Fed is cutting rates, the dollar should be falling.
Markets are also gearing up for potential catalysts, including the release of U.S. retail sales and producer prices data due later in the week.
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