The dollar stabilizes before the threat of the Fed; brittle yen

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SINGAPORE, Oct 31 (Reuters) – The dollar rose on Monday as bets cooled that the U.S. Federal Reserve might signal a slowdown in its aggressive rate-hike cycle ahead of its key policy meeting this week. and while internal data points to underlying inflationary pressure. .

The dollar moved broadly higher in Asian trade, particularly against the Japanese yen, rising more than 0.5% and breaking above the 148 yen level.

The yen last traded at 147.82 per dollar, further pressured by the Bank of Japan’s (BOJ) decision to keep interest rates ultra-low on Friday, and still dovish comments from BOJ Governor Haruhiko Kuroda. , as interest rates rise elsewhere.

The pound and euro each fell more than 0.2% against the dollar, which has recouped some of last week’s losses, having retreated on hopes of a possible Fed change of course.

“Markets were expecting a Fed shift in monetary policy. I think it’s too early, given how resilient the economy has been and particularly how high inflation has been,” said Carol Kong, currency strategist at Commonwealth Bank of Australia. (ACB).

Data on Friday showed that US consumer spending rose more than expected in September, while underlying inflationary pressures continued to rise.

The Fed is expected to make another rate hike of 75 basis points (bps) after the conclusion of the FOMC meeting on Wednesday.

Sterling was down 0.26% at $1.1584, although it was on track for a monthly gain of nearly 4%, staging a strong recovery after former British Prime Minister Liz Truss’s economic program sparked turmoil. of the market last month.

Since then, investors have benefited from the appointment of new Prime Minister Rishi Sunak, who has vowed to pull the country out of a deep economic crisis.

“In fact, the British pound has rallied quite a bit in recent weeks, and I think a lot of that really reflects an easing of previous market turmoil and the easing of UK political uncertainties,” CBA’s Kong said.

The euro fell 0.25% to $0.9943, but was also headed for a monthly gain of more than 1%, the first since May.

Before another central bank decision this week, the Australian dollar was up 0.1% at $0.6418.

The Reserve Bank of Australia (RBA) is expected to raise interest rates by a more modest 25 bps at its meeting on Tuesday, even as inflation hit a 32-year high last quarter.

“We expect the RBA Board to stick with a 25bp rate hike on Tuesday as we believe it is too early for the Board to reverse the judgment it made at its October meeting on reducing the size of rate hikes. rates,” the ANZ analysts said.

“But now we expect a 25bp follow-up in December. Coupled with another 75bps of rate hikes in the first half of 2023, we now have the RBA cash rate peaking at 3.85%.”

The kiwi was up 0.11% at $0.5822 and was on track for a nearly 4% monthly gain, reversing two consecutive months of losses.

Elsewhere, the Chinese yuan tumbled after data released on Monday showed the country’s factory activity unexpectedly fell in October, hit by declining global demand and tight domestic COVID-19 restrictions.

“We expect the CNY to weaken further in the short term given the apparent weakness in the economy. Coupled with more COVID cases and expected lockdowns, it becomes even more difficult to be bullish on the yuan,” said Iris Pang, chief economist at Greater China. China in ENG.

The offshore yuan fell 0.4% to 7.2990 per dollar.

Against a basket of currencies, the US dollar index was up 0.1% at 110.92, pulling back slightly from a one-month low of 109.53 hit last week.

Information from Rae Wee; Edited by Kenneth Maxwell and Shri Navaratnam

Our standards: The Thomson Reuters Trust Principles.

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