Dollar in holding pattern ahead of FOMC minutes, Reuters comments Powell

By Rae Wee

SINGAPORE (Reuters) – The U.S. dollar struggled to make headway against its peers on Monday, although it traded in a narrow range, as investors awaited fresh catalysts this week that could provide clues about the outlook for U.S. interest rates.

Minutes from the Federal Reserve’s July policy meeting and a speech by Chairman Jerome Powell in Jackson Hole are likely to be the main drivers of currency movement this week, which will also see inflation data from Canada and Japan alongside by US PMI readings. , the euro area and Great Britain.

The euro last bought $1.1026, while sterling climbed to a one-month high of $1.2950 in an otherwise quiet start to the Asian trading session, as bets on an imminent start to the cycle easing by the Fed put pressure on the dollar.

Against a basket of currencies, the greenback fell 0.06 percent to 102.40.

Traders have fully priced in a 25 basis point rate cut in September, with a 24.5% chance of a 50bp move. Futures point to a reduction of more than 90bp by the end of the year.

“Markets will focus on what Powell has to say later this week, and in that regard, I think it will be a great opportunity for Powell to either support or push market prices,” said currency strategist Carol Kong of at the Commonwealth. Bank of Australia (OTC:) (CBA).

“I think he’ll at least green-light a rate cut at the September meeting. If anything, I think he’ll try to keep optionality because we have more data before the next meeting.”

Financial markets had a turbulent start to August after a series of softer-than-expected US economic data – in particular, a weak jobs report for July sparked severe volatility as investors feared that the most large economy in the world is heading for a recession and that the Fed is being slow in easing rates.

With those worries easing, traditional safe-haven assets such as the yen — which got a boost from a flight to safety — have given up some of their gains since early August.

The Japanese currency was last 0.2 percent lower at 147.93 a dollar, down about 4 percent from a seven-month high earlier in the month.

Japanese investment data on Friday confirmed that after a bout of turmoil, investors returned to bets that the Bank of Japan will go slow on raising interest rates and that the yen will remain cheap.

“Given that financial markets have calmed down and volatility has eased, I think USD/JPY is likely to recover further, perhaps to 150, as volatility continues to decrease,” CBA’s Kong said.

The New Zealand dollar rose 0.16% to $0.6062, while the Australian dollar hit a one-month high of $0.66865.

The bank received support from a yet-to-be-agreed Reserve Bank of Australia after Governor Michele Bullock said on Friday it was premature to consider cutting interest rates.

Her comments came just days after New Zealand’s Reserve Bank issued its first interest rate cut in more than four years.