US dollar hits 9-month low against yen amid talk of big Fed rate cut

Former New York Fed chief Dudley says strong case for 50-bp move * US rate futures price in higher odds of 50-bp cut * University of Michigan Sentiment improves (updates across prices, adds analyst commentary) By Gertrude Chavez-Dreyfus and Chibuk OGUH NEW YORK, Sept 13 – The US dollar tumbled to its lowest level in nearly nine months against the Japanese yen on Friday after media reports once again fueled speculation that the Federal Reserve could cut a super-sized 50-basis-point interest rate. Its policy meeting next week.

Analysts said reports from the Wall Street Journal and Financial Times late on Thursday that a 50-bp rate cut was still an option, and comments from a former Fed official arguing for an outsized cut, had changed market expectations. The US rate futures market priced in a 51% chance of a 50-bp easing by the Fed at the conclusion of its two-day meeting on Wednesday, up from about 15% early Thursday. Futures traders also factored in a 117 bps cut for 2024, up from 107 bps in the previous session.

Brad Bechtel, global head of FX at Jefferies in New York, said media reports had tipped the market for a 50-bp cut after new inflation data bolstered expectations of a 25-bp cut by the Fed. “So you’re seeing some unwinding of positions that were looking for 25 basis points.” In late afternoon trade, the dollar was down 0.66% at 140.855 yen, having earlier fallen to 140.285, its lowest level since Dec. 28. Over the week, it fell 1%. The euro, meanwhile, rose 0.08% to $1.1083 against the greenback.

The European Central Bank cut interest rates by 25 bps on Thursday, but ECB President Christine Lagarde played down expectations for another cut in borrowing costs next month. Gains in the euro pushed the dollar index down 0.08% to 101.08. “The increase in prospects for a potentially more dovish Fed policy sent the dollar lower and lifted many other currencies,” said John Wallis, FX and macro strategist at BNY Mellon in Boston.

The dollar fell after data showed US consumer sentiment improved amid easing inflation in September. The preliminary reading on the University of Michigan’s overall index of consumer sentiment came in at 69.0 this month, compared with a final reading of 67.9 in August. Economists polled by Reuters had forecast a preliminary reading of 68.5. US economic data this week appeared to support the case for a typical 25-bp cut next week, with a measure of consumer price inflation showing volatile food and energy prices that rose more than expected in August. But former New York Fed President Bill Dudley added on Friday to speculation about a 50-bp Fed rate cut, adding that there is a strong case for such a move and that rates are currently 150-200 basis points above the so-called neutral rate. For the US economy, where policy is neither restrictive nor accommodative.

“Why don’t you start now?” he said. Francesco Paysol, currency strategist at ING, said the euro was “again eyeing $1.11 after combined support from a not-dovish-enough European Central Bank and rising dovish bets on the Fed.” Sterling edged down a slight 0.01% to $1.31235, weakening after touching near its highest level in a week. The Bank of England is expected to keep its key interest rate at 5% next week after starting its easing with a 25-bp cut in August.

Against the Swiss franc, the dollar fell 0.38% to 0.84780 francs. Investors were also looking ahead to the Bank of Japan’s interest rate decision next Friday, when it is expected to keep its short-term policy rate target steady at 0.25%. BOJ board member Naoki Tamura said on Thursday that the central bank should raise rates to at least 1% as soon as the second half of the next fiscal year, but added that it would do so gradually and in several stages. “The BOJ is supposed to be going in a different direction — 180-degree opposite direction — than the Fed,” Vallis said, adding that whether and when the BOJ will raise rates remains an open question.

13 September 06:19 pm GMT Description RIC Last US Close Previous Session Pct Change YTD Pct High Bid Low Bid Dollar Index 101.06 101.16 -0.1% -0.31% 101.19 100.88%10810810100D 41% $1.1102 $1.1071 Dollar /Yen 7 141.76 -0.62% -0.12 % 141.86 140.29 Euro/Yen 1.1083 157.04 -0.57% 0.33% 157.09 155.63 Dollar/Swiss. 580% -470.580. 8511 0.8445 Sterling / Dollar 1.3126 1.3126 0.01% 3.15% $1.3158 $1.3115 Dollar / Canadian 1.3592 1.3581 0.11% 2.56% 1.36 1.3566 Aussie / Dollar 0.6708 0.6723 – 0.21% -1.61% $0.6733 $0.6693 Euro/Swiss 0.93294% – 0.93294 7 0.9371 Euro/Sterling 0.8442 0.8438 0.05% -2.62% 0.8452 0.8428 NZ 0.6161 0.6183 -0.35 % -2.49% $0.6193 0.616 Dollar/Dollar/Norway 10.6581 10.7119 -0.5% 5.16% 10.7237 1 0.6323 Euro/Norway 11.8134 11.81781117581% .7937 Dollar/Sweden 10.217 10.2821 -0.63% 1.49% 10.2979 10.1892 Euro/Sweden 11.3246 11.3872 -0.55% 1.79% 11.4 11.303