By Kevin Buckland
TOKYO (Reuters) – The U.S. dollar traded close to a three-month high against major peers on Thursday, buoyed by expectations of a slower pace of interest rate cuts by the Federal Reserve and growing anticipation of a possible second Donald Trump presidency .
The dollar index, which measures the currency against six rivals including the euro and yen, stood at 104.30 as of 0437 GMT, not far from an overnight high of 104.57, a level last seen on July 30 was seen.
According to CME Group’s FedWatch Tool, a wave of robust macroeconomic indicators and some hawkish comments from Fed officials have dampened expectations for monetary easing for the rest of this year.
Expectations for a total of 50 basis points of rate cuts over the remaining two meetings of 2024 fell to about 66%, down from about 70% a day earlier and about 86% a week ago. Traders are currently betting 32% odds on a single 25 basis point cut by year-end, and 2% odds on unchanged.
This week, Kansas City Fed President Jeffrey Schmid said he would prefer to “avoid excessive steps,” and Philadelphia Fed President Patrick Harker backed “a slow, methodical approach” to further easing.
Yields on the 10-year US Treasury note rose in response, hitting a three-month high of 4.26% overnight.
The Japanese yen tends to weaken when US Treasury yields rise, and the dollar rose to 153.19 yen on Wednesday for the first time since July 31.
The yen got some respite during Thursday’s session after Japan’s finance minister said officials were “monitoring exchange rate movements with heightened vigilance,” citing the risk of intervention. The Japanese currency last changed hands at a rate of 152.17 per dollar.
Japan’s coalition government – led by new Prime Minister Shigeru Ishiba – is at risk of losing its majority in parliament in Sunday’s elections, recent polls show, and any increase in political uncertainty could derail the Bank of Japan’s plans to further complicate the normalization of monetary policy.
BOJ Governor Kazuo Ueda said it “still takes time” to achieve the central bank’s 2% inflation target in a sustainable manner, and indicated that rate hikes would be “cautiously and gradually.” But he also warned of the costs of moving too slowly, which could prompt speculators to push the yen lower.
The central bank’s next policy decision is on October 31, and it is widely expected to hold this time.
“USD is the king of currencies given market expectations that the Fed will keep policy rates higher than previously expected and the pricing in of Trump 2.0,” said Shoki Omori, chief Japan strategist at Mizuho Securities, adding that the dollar will ultimately could put the economy to the test. yen level.
