Market News
Dollar rises from four-year low versus euro; Powell remarks in focus - REUTERS
Summary
- Yen rises with LDP leadership vote in Japan in the spotlight
- Powell’s remarks in focus after near-certain rate cut
- Investors watching for signals on Fed’s easing path
- Fed meets as questions over its independence grow
Sept 17 (Reuters) - The U.S. dollar firmed against the euro but weakened versus the yen on Wednesday as investors waited to see whether Federal Reserve Chair Jerome Powell would confirm market expectations for a dovish policy path at a press conference later in the day.
The dollar fell to a four-year low against the common currency on Tuesday, as investors turned their attention to the Federal Reserve’s policy meeting, where a 25-basis-point rate cut is widely expected.
Markets are pricing in 68 basis points of Fed easing moves by year-end and a total of 147 bps by the end of 2026.
The spotlight will also be on whether policymakers considered a bigger 50 bps cut at a time when President Donald Trump pushes ahead with efforts to overhaul a pillar of the U.S. economy, stoking concerns about the central bank's independence.
The euro eased by 0.29% to $1.1834, after hitting a four-year high of $1.18785 on Tuesday.
Sterling eased by 0.05% to $1.3640, still not far from 2-1/2-month highs after British inflation data matched expectations.
Fed Chair Powell "will offer balance. He'll highlight again the downside risk to employment growth, but refrain from signalling a long string of cuts after September," said Thierry Wizman, global forex and rates strategist at Macquarie Group. "That could rally the dollar, hurt gold, and cause a tremor tomorrow in the tectonic drift higher in tech stocks," he added.
The dollar index , which measures the U.S. currency against six others, was up 0.18% at 96.81 after hitting 96.554 on Tuesday, its lowest since early July.
The index is down nearly 11% this year, with investors bracing for further losses after a recent pause.
"If the Fed were to sound a little more hawkish this week, that could lift the dollar. But I'd argue the effect would be temporary, as doubts would linger over whether the Fed may need to accelerate its rate-cutting cycle," said Paul Mackel, global head of forex research at HSBC.
"That's because some U.S. employment indicators have clearly been cooling," he added.
The Fed began a two-day meeting on Tuesday with a new governor on leave from the Trump administration, Stephen Miran, joining the deliberations, and a second policymaker at the table still facing efforts by Trump to oust her.
A federal appeals court on Monday blocked Fed Governor Lisa Cook's firing, paving the way for Cook, an appointee of former President Joe Biden, to participate fully in the policy meeting this week. "How dovish Stephen Miran’s dot will be is likely to draw close attention from markets," HSBC's Mackel said. The U.S. Senate recently confirmed Miran to the Fed's Board of Governors, expanding Trump's influence over the world's most important central bank.
YEN IN THE SPOTLIGHT
The Japanese yen firmed to 146.205 per dollar, its strongest in eight weeks ahead of the Bank of Japan policy meeting, where the central bank on Friday is expected to stand pat on rates. The yen was last up 0.14% at 146.28.
The spotlight is on an October 4 vote where the ruling Liberal Democratic Party will elect a new leader to replace outgoing Prime Minister Shigeru Ishiba.
"This (a strong yen versus dollar) may be because the more moderate Shinjiro Koizumi is entering the LDP leadership race against Sanae Takaichi, who is seen as yen bearish for her views on loose monetary and fiscal policy," said Chris Turner, head of forex strategy at ING.
The Swiss franc eased 0.14% to 0.7870 against the U.S. dollar, near the decade high it touched in the previous session at 0.7857.
Reporting by Stefano Rebaudo; Editing by Jacqueline Wong, Kim Coghill and Muralikumar Anantharaman and Gareth
