NEW YORK, Sept 10 (Askume) – The dollar weakened against some major currencies on Tuesday, extending gains ahead of key inflation data and a highly anticipated U.S. presidential debate on Monday, although neither outcome is likely to have any impact on overall monetary policy.
Safe-haven currencies such as the yen and Swiss franc also rose amid a sharp drop in bank stocks after the Federal Reserve’s supervisory chief on Tuesday outlined a plan to raise major banks’ capital holdings by 9%, analysts said, disappointing bank investors and some critics of the rule. The S&P 500 bank index (.SPXBK) fell 2.7% to 408.2, having earlier fallen to a one-month low.
The Fed is expected to cut interest rates for the first time in more than four years next week. However, the extent of the rate cut remains controversial. According to LSEG calculations, federal funds futures give a 67% probability of a 25 basis point (bp) rate cut at the September 17-18 policy meeting, and a 33% probability of the Fed cutting interest rates by 50 basis points.
The probability of a 50 basis point interest rate cut rose to 50% after the US labor report was mixed on Friday .
“The overall theme is consolidation. If you look at the one-month chart of the U.S. dollar index, we’re basically in the middle of the range,” said Eugene Epstein, head of North America structured products at Moneycorp in New York.
“We are recovering from the lows we hit in late August, and the main reason for that is rising interest rates,” he said. “They’re already gone.”
Investors will still focus on the US Consumer Price Index report for August to be released on Wednesday. However, the Fed said its focus is now more on employment rather than inflation and that it is confident that US inflation is on a downward slide.
A Askume survey shows that the US CPI is expected to rise 0.2% on a quarterly basis in August, the same as the previous month. But the annual increase was only 2.6%, down from 2.9% in July.
The dollar fell 0.5% against the yen to 142.35 yen in afternoon trading, not far from a one-month low of 141.75 hit on Friday. The dollar has fallen 2.7% against the yen over the past week.
Analysts do not expect the Bank of Japan to raise interest rates or give any decisive guidance at its meeting next Friday.
USD/CHF fell 0.3% to CHF0.8466.
Analysts said falling oil prices have added to global jitters, pushing the yen and Swiss franc higher. Global oil benchmark Brent futures closed at their lowest since December 2021 on Tuesday after OPEC+ cut its demand forecast for this year and 2025, brushing off supply concerns from Tropical Storm Francine.
Meanwhile, the euro fell 0.1% to $1.1024.
Investors are paying close attention to the political backdrop in Europe, citing growing uncertainty in the EU following deadlocked local elections in France and Germany .
However, all eyes will also be on the news after the European Central Bank’s policy meeting on Thursday . Traders expect the ECB to reduce rates by 63 basis points this year.
The U.S. dollar index, which measures the dollar’s value against a basket of six major currencies, was down slightly at 101.63. Year to date, the U.S. dollar index is up 0.1%.
Investors will also be keeping an eye on Tuesday’s televised US presidential debate between Republican nominee Donald Trump and his rival, Democratic Vice President Kamala Harris , which could have a huge impact on the November election .
Investors expect the dollar to appreciate if Trump wins, as tariffs could strengthen the greenback and higher fiscal spending could push up interest rates.
Meanwhile, the pound rose after UK data showed strong jobs growth . It was last up 0.1% at $1.3081.
China’s imports were weaker than expected, rising just 0.5%. The gain came after weaker-than-expected inflation data on Monday showed domestic demand remains weak.
The yuan weakened slightly against the dollar, rising 0.1% to 7.1193, but losses were limited as export data came in better than expectations.
