TOKYO, Sept 12 (Askume) – The dollar inched close to a four-week high against the euro on Thursday after signs of stabilising U.S. inflation raised expectations the Federal Reserve would refrain from a big interest rate cut next week.
Meanwhile, the European Central Bank (ECB) is widely expected to cut interest rates by 25 basis points on Thursday , with investors eager to hear indications of how soon the monetary authority will cut rates again.
The US dollar strengthened against the yen on Wednesday, with the US dollar falling as much as 1.24% to its lowest level this year, but regaining all losses after the release of consumer price data.
On Wednesday morning, Bank of Japan board member Junko NakagawaIt reiterated the central bank’s accommodative stance, saying there is still room for further interest rate hikes due to low real interest rates.
On Thursday, another BOJ board member, Naoki Tamura, considered a hawk on policy issues, said the pace of tightening could be much slower than the market expected, comments that helped offset the yen’s weakness.
Shoki Omori, chief Japan strategist at Mizuho Securities, said the speeches marked a significant change in the bank’s communications style.
“The Bank of Japan is trying to use forward guidance rather than the media to assess market price growth, which is a good change,” he said.
“But the market is not used to it yet, so that’s one of the reasons why the yen has become more volatile in recent weeks.”
The dollar was up 0.13% against the yen at 142.55 yen by 0200 GMT, having risen 0.41% earlier. Following Nakagawa’s comments, the index fell to a low of 140.71 for the first time since the previous trading day on Dec. 28.
“USD/JPY rebounded to lows of 140.71… opening up a path back to 145.50,” said IG analyst Tony Sycamore.
Earlier, US long-term Treasury yields rebounded sharply after falling to a 15-month low of 3.605% on Wednesday, rising to 3.6665% during Asian time on Thursday.
Last month, the US Consumer Price Index (CPI) rose 0.2% , the same increase as in July. However, excluding the volatile food and energy components, the index rose 0.3%, up from the 0.2% gain in the previous month.
As a result, traders have lowered the probability of a 50 basis point (bp) rate cut on September 18, reducing the probability of a 25 bp rate cut from 15% to 85%.
However, a 104 basis point rate cut is still anticipated at the end of the year, meaning the market expects a 50 basis point rate cut at the November or December meeting.
As for the European Central Bank, markets are essentially 100% ready for a quarter-point rate cut on Wednesday, with a group of policymakers favoring another reduction after June’s quarter-point cut.
The euro was steady at $1.1009, close to Wednesday’s low of $1.1002, its lowest since Aug. 16.
GBP/USD fell to $1.3038 for the first time since August 20, after falling to $1.30025 in the previous session.
The Swiss franc also lagged, with USD/CHF steady at CHF0.85215 after reaching CHF0.8544 on Wednesday, its highest level since Aug. 21.
