Dollar Hits Nine-Month Low Versus Yen as Fed Debate Reignites
The dollar fell to its lowest level this year against the Japanese yen on Friday after media reports reignited the debate about an outsized Federal Reserve rate cut next week.
The U.S. currency fell more than 0.8% to 140.645 yen , the lowest since late December, and last traded 0.7% lower at 140.8. The euro, pound and Swiss franc made gains against the dollar.
U.S. economic data this week appeared to support the case for a typical 25 basis point (bp) cut next week, with the measure of consumer price inflation that strips out volatile food and energy prices rising more than expected in August.
However, market analysts said reports by the Wall Street Journal and Financial Times saying a 50 basis point cut is still an option, and comments from a former Fed official arguing for an outsized cut, caused a shift in market expectations.
Traders were assigning a roughly 40% chance of a 50 bp cut by the Fed next Wednesday, up from around 25% on Thursday and 15% on Wednesday, according to money market pricing.
The euro was last up 0.15% at $1.1095 after rising 0.57% on Thursday after the European Central Bank cut interest rates by 25 bps but ECB President Christine Lagarde dampened expectations for another cut next month.
Sterling also ticked up 0.15% to $1.3146, around its highest in a week. The Bank of England is expected to hold interest rates at 5% next week after kicking off easing with a 25 basis point reduction in August.
The dollar fell 0.39% against the Swiss franc , which like the yen is particularly sensitive to expectations about Fed policy and U.S. bond yields.
Investors were also looking to the Bank of Japan's interest rate decision next Friday, where it's expected to keep rates steady at 0.25%.
BOJ board member Naoki Tamura said on Thursday the central bank must raise rates to at least 1% as soon as the second half of the next fiscal year but added that it would likely raise rates slowly and in several stages.
Source : Reuters
