Dollar steady ahead of Powell’s speech; Ueda aims to calm market nerves By Reuters

By Ankur Banerjee

SINGAPORE (Reuters) – The U.S. dollar was quiet on Friday as traders braced for comments from Federal Reserve Chairman Jerome Powell, while Bank of Japan (BOJ) Governor Kazuo Ueda aimed to calm lingering market nerves after a surprise rate hike last month.

The yen was stronger at 145.78 per dollar after data showed Japan’s core inflation accelerated for a third month in July.

On Friday, the focus will be on central bankers, first BOJ Governor Ueda, who is in Japan’s parliament to discuss the surprise decision to raise interest rates last month, which rattled investors and sent the yen higher.

The interventions and an interest rate hike in July triggered investors who canceled the popular carry trade, in which traders borrowed the yen to fund high-yielding assets, pulling the yen from 38-year lows hit last month.

The move, along with concerns about a US recession, triggered a massive global sell-off in early August, although most markets have since recovered.

“Markets at home and abroad remain volatile, so we will be very vigilant about market developments for the time being,” Ueda told parliament.

However, Ueda said the central bank was prepared to raise rates if the economy and prices moved in line with his forecast.

“A few weeks ago, this could have been an exciting event,” said Matt Simpson, a senior market analyst at City Index, noting that officials appeared to have scaled back their narrative amid recent market turmoil.

“Now I suspect the yen has strengthened too much, too soon, for their liking.”

which measures the greenback against six major peers, was little changed at 101.43 in early trade after rising 0.34% in the previous session. The index hit 100.92 on Wednesday, its lowest level this year.

Fed policymakers on Thursday lined up to support a U.S. interest rate cut next month now that inflation has eased from a peak and the U.S. labor market is cooling, although one signaled no rush to ease policy.

Kansas City Federal Reserve President Jeff Schmid, one of the U.S. central bank’s top policymakers, was among the hordes of policymakers who spoke Thursday.

That sets the stage for the Fed’s Powell, who is due to speak at a central bank event in Jackson Hole, Wyoming, later Friday, where traders will tune in to gauge when and by how much the Fed might cut borrowing costs .

Nomura analysts said Powell’s speech was likely to be measured and balanced, maintaining optionality, and that he was unlikely to deviate from the easing path indicated by the minutes of the Fed’s last meeting.

Markets now peg a 73.5% chance the Fed will cut rates by 25 basis points (bps) at its September meeting, CME’s FedWatch tool showed. Traders also anticipate 99 bps of easing this year.

“While a soft landing in the economy is still in sight, it is by no means guaranteed,” said Ryan Brandham, head of capital markets for North America at Validus Risk Management.

Brandham said the balance of risks is tipped toward fewer, rather than more, cuts.

The euro was last at $1.1119, not far from the 13-month high it hit on Wednesday, while the pound was last at $1.3099, just off the 13-month high it hit Thursday.

Markets are now pricing in more rate cuts from the Federal Reserve until the end of the year than for the European Central Bank or the Bank of England.

The Australian dollar was at $0.6709, while the New Zealand dollar was 0.1% higher at $0.61465. (AUD/)