LONDON, Sept 17 (Askume) – The dollar hovered near its lowest level in a year on Tuesday, a day after the United States cut interest rates ahead of the start of an easing cycle.
The euro traded at around $1.1132 against the dollar, not far from its yearly high of $1.1201.
The yen weakened to 140.71 after hitting a high of 140 in thin trade on Monday due to a holiday.
This is the biggest decline this year, so it has the most room to rise due to the impact of the Federal Reserve’s easing policies. A sustained move above 140.00 would open the way to last January’s low of 127.215.
Fed funds futures rose, raising the probability of a 50 basis point rate cut to 65%, up from 30% a week earlier. The outlook fell sharply after media reports revived the possibility of more aggressive easing.
“Any sign of weakness in the US economic data on Tuesday will further fuel market speculation that a 50 basis point interest rate hike could be imminent,” said Jane Foley, senior currency strategist at Rabobank.
US retail sales and industrial production data for August are expected to be released on Tuesday, though all eyes will be on the Federal Reserve’s two-day meeting that ends on Wednesday.
“Whether (the Fed) moves rates to -25 basis points or -50 basis points on Wednesday, we think the Fed’s message will remain ‘the same,'” Macquarie strategists said in a note to clients.
“Even after a -25 basis point rate cut, the dollar is likely to weaken against major currencies… the biggest losses, if any, are likely against the yen,” he said.
“This is because the central bank policy gap between the Fed and the Bank of Japan will remain the largest at the moment.”
The Bank of Japan is expected to keep policy steady on Friday but also signal that further interest rate hikes are imminent, which could liven up its next meeting in October.
Sterling – the G10’s best-performing currency this year, up 3.9% against the dollar – also gained against the greenback on signs of economic recovery in Britain and stabilising inflation.
On Monday, its price rose above $1.32, with a buying price of $1.32095 at 1105 GMT.The Bank of England is widely expected to keep interest rates steady at 5% at its meeting on Thursday, though the market puts the probability of another rate cut at 39%.
The Australian and New Zealand dollars fell to $0.67555 and $0.6198 respectively after Monday’s gains as traders focused more on the Federal Reserve rather than signs of deepening economic woes in China after a sluggish weekend.
Chinese markets were closed on Wednesday for the Mid-Autumn Festival holiday, but the yuan held steady at 7.095 in offshore trading and hit a new range.
The US dollar index was at 100.7, not far from the 2024 low of 100.51 hit last month.
