Dollar firms after Powell rejects aggressive easing bets By Reuters

By Kevin Buckland

TOKYO (Reuters) – The U.S. dollar gained against peers on Tuesday after Federal Reserve Chairman Jerome Powell rejected bets on more rate cuts overnight.

The euro traded not far from a one-week low after German inflation fell to its lowest since early 2021, fueling speculation of another rate cut this month.

The yen has held close to mid-range against the dollar over the past month after two volatile days as traders assessed Japan’s incoming prime minister and his cabinet.

Australia’s dollar took a breather after hitting its highest level since February last year on Monday, supported by stimulus from the country’s main trading partner China.

The Fed’s Powell took a more aggressive tone in a speech at a conference in Tennessee, saying the US central bank would likely stick with cutting interest rates by a quarter of a percentage point going forward. “This is not a committee that feels like it’s in a rush to cut rates quickly,” he said.

Traders remain confident the Fed will cut again at its next policy-setting meeting in November, but cut expectations for a 50 basis point (bp) cut to 35.4% from 53.3% a day earlier early, according to CME Group’s (NASDAQ:) Instrument’s FedWatch.

The Fed kicked off its easing cycle with a half-point more-than-expected rate cut last month.

Powell’s speech came ahead of a heavy week of US data, including the Institute for Supply Management’s manufacturing index later on Tuesday and the non-manufacturing report on Thursday, followed by potentially crucial monthly jobs figures on Friday.

“Powell said the speed at which the Fed cuts rates will depend on the data, so he’s clearly not ruling out the prospect of another 50 bps moves going forward,” said Ray Attrill, head of currency strategy at National Australia Bank (OTC: ) .

“Friday’s payrolls data could yet prove decisive in how the Fed’s ax falls.”

It added 0.07 percent to 100.85 as of 0055 GMT, after rising 0.3 percent on Monday.

It rose 0.23 percent to 143.95 yen, after moving from 146.495 yen on Friday to 141.65 yen on Monday.

Shigeru Ishiba, who is due to be confirmed as Japan’s new prime minister later on Tuesday, is seen by markets as a monetary policy hawk, despite a recent softening of rhetoric on the need for policy normalization.

He won his party’s leadership vote on Friday in one of the closest races ever and is now trying to unify the party after calling a snap general election for October 27.

The euro was steady at $1.1132 after falling as low as $1.1113 in the previous session.

Data on Monday showed that inflation in Germany fell more than expected in September to the lowest rate since February 2021. Inflation also slowed in Italy.

European Central Bank President Christine Lagarde told parliament that “the latest developments strengthen our confidence that inflation will return to target in due course”, and this should be reflected in the October 17 policy decision.

It was little changed at $0.6914 after advancing to $0.69435 on Monday.

Over the weekend, China’s central bank ordered lenders to cut mortgage rates until the end of October. A host of megacities such as Guangzhou, Shanghai and Shenzhen have also dramatically eased home-buying restrictions.

The yuan fell to 7.0116 per dollar in offshore trade on Tuesday, after falling about 0.36 percent overnight on the prospect of further monetary easing.

China begins its Golden Week holiday on Tuesday, when onshore financial markets will be closed.