LONDON : The dollar eased from near seven-week highs against major currencies on Tuesday after investors assessed the outlook for U.S. rate cuts, even as the conflict in the Middle East continues to support the currency’s safe-haven appeal.
The euro inched 0.1 per cent higher to $1.098575, not far from the seven-week low of $1.09515 hit last week. The pound edged 0.1 per cent higher to $1.31005, after hitting a three-week low of $1.30595 on Monday.
Traders have drastically shifted their expectations of monetary easing from the U.S. Federal Reserve this year. A strong jobs report last week gave credence to Fed Chair Jerome Powell’s comments that the central bank would stick to its usual quarter-percentage-point rate reductions after it began its easing cycle with a big cut in September.
“A lot of readjustment on the dollar is on the back of the idea that the Fed is not going to cut by 50 basis points anytime soon,” said Nick Rees, senior FX market analyst at Monex Europe.
“We’re no longer worried about the U.S. dropping into recession this year.”
Federal Reserve Bank of New York President John Williams, a permanent vote of the Fed’s rate-setting Committee, echoed Powell’s comments, telling the Financial Times in an interview that he doesn’t see the September move “as the rule of how we act in the future”.
MARKET PRICING
Markets are no longer fully pricing in a rate cut in November and are ascribing around a 90 per cent chance of a 25-basis-point reduction, the CME FedWatch tool showed. Just 50 bps of easing is priced in by December, down from more than 70 bps a week earlier.
That has helped the currency surge to a multi-week highs against the euro, sterling and the yen. The yen, however, clawed back some of the losses on Tuesday as rising geopolitical