Dollar solid after Powell rejects aggressive easing bets By Reuters

By Kevin Buckland and Brigid Riley

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

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.

The Australian dollar edged closer to Monday’s high after upbeat domestic retail sales data.

Powell took a more dovish tone in a speech at a conference in Tennessee, saying the US central bank would likely stick with a quarter of a percentage point of interest rate cuts 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 (bps) cut to 35.4% from 53.3% a day earlier early, according to CME Group’s (NASDAQ:) Instrument’s FedWatch.

“The door has not been closed for a reduction of 50 points per second, because if it is based on economic data, then such a reduction is justified. But Powell clearly thinks the markets are too excited” about future cuts, said Matt Simpson, senior market analyst at City Index.

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.

If the ISM non-manufacturing jobs data and report beat expectations again this month, the dollar could see a “decent bounce” higher before eventually resuming its downward run, Simpson said.

It added 0.1 percent to 100.82 as of 0403 GMT, after rising 0.3 percent on Monday.

The greenback rose 0.45 percent to 144.27 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.

Minutes of the Bank of Japan’s (BOJ) September meeting showed on Tuesday that policymakers discussed the need for caution on short-term interest rate hikes with little impact on the market.

“With Kishida out and Ishiba in, it looks like policy continuation remains,” said Andy Ji, senior Asia FX strategist at InTouch Capital Markets.

“In the short term, (this) means that the BOJ’s accommodative tilt gets the government’s blessing and the current trading strategy of (is) bearish buying.”

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 euro was mostly unchanged at $1.113575 after falling as low as $1.1113 in the previous session.

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 rose 0.09 percent to $0.69185, returning to a 1-1/2-year peak of $0.6943 reached on Monday after Australian retail sales rebounded more than expected in August .

It traded at $0.6322, down 0.47%.