Tentative dollar, yen falls on confused prospect of Fed rate cut

By Rae Wee

SINGAPORE (Reuters) – The dollar held in tight ranges on Monday, while the yen pared some of its safe-haven gains as investors were undecided about the extent of a Federal Reserve interest rate cut expected later this month and were looking at this week’s US inflation reading. for more clues.

Friday’s highly anticipated US jobs data failed to provide clarity to traders on whether the Fed will deliver a regular 25 basis point interest rate cut or a whopping 50bp at its policy meeting on next week.

While employment rose less than expected in August, the unemployment rate fell and wage growth remained solid, indicating that the US labor market was cooling, but not at a pace that would justify panic about the growth prospects of the economy.

Currencies were mostly limited in early Asian trade, settling after some volatility following Friday’s non-farm payrolls report.

The yen was last 0.26 percent lower at 142.65 per dollar, giving up some of the gains after rising 2.73 percent last week as risk aversion gripped markets.

It hardly reacted to data on Monday that showed Japan’s economy expanded in April-June at a slightly slower pace than initially reported, largely due to downward revisions to corporate and personal spending.

The euro rose 0.03% to $1.1089, while the pound sterling rose 0.06% to $1.3138.

Against a basket of currencies, the greenback was little changed at 101.21.

“The Fed is at a crossroads,” said Boris Kovacevic, global macro strategist at Convera. “With mixed signals from the labor market, they are unlikely to commit to a 25 or 50 basis point cut just yet.”

Fed policymakers signaled on Friday that they are ready to start a series of interest rate cuts at the central bank’s next meeting on Sept. 17-18, noting a cooling in the labor market that could accelerate into something more severe in the absence of policy. change.

Futures show a 35 percent chance the Fed will cut rates by half a percentage point next week, with Wednesday’s U.S. inflation report the next major economic indicator that could move market prices.

“While more substantial cuts are possible by the end of the year if the data deteriorates, our baseline remains for a 25bps rate cut in September, with easing at this pace likely to occur in November and December” , said David Doyle, chief economist at Macquarie.

Elsewhere, the Australian dollar advanced 0.07 percent to $0.6675 after falling more than 1 percent to hit a near three-week low on Friday.

The New Zealand dollar was steady at $0.6175, although not far from Friday’s two-week low.

(Reporting by Rae Wee; Editing by Shri Navaratnam)