Dollar Hits Three-Month High as Traders Scale Back Rate-Cut Bets Amid Fed Divide
The U.S. dollar held steady on Tuesday, hovering near a three-month high as traders pared back expectations for near-term interest rate cuts following a split Federal Reserve. Investors are also keeping an eye on upcoming central bank meetings, including the Reserve Bank of Australia, where rates are expected to remain unchanged.
The yen weakened to 154.38 per U.S. dollar in early Asian trading, approaching an eight-and-a-half-month low. Tokyo authorities issued cautionary remarks, fueling speculation about possible market intervention to support the yen. Meanwhile, Fed officials continue to debate the economic outlook amid a lack of official government data due to the ongoing federal shutdown.
Last week, the Fed cut rates but Chair Jerome Powell hinted that further reductions might be unlikely this year. Consequently, traders now see a 65% chance of a rate cut in December, down from 94% just a week earlier. This shift has bolstered the dollar, with the euro slipping to $1.1506 and sterling falling to $1.312. The dollar index, which tracks the U.S. currency against six major counterparts, rose to 99.99, marking a three-month peak.
Investors are navigating the data void left by the government shutdown by relying on alternative economic indicators, such as ADP employment figures. Reports from the Institute for Supply Management show U.S. manufacturing has contracted for the eighth consecutive month, signaling subdued new orders. Analysts warn that prolonged shutdown effects could intensify economic pressures, with Powell aiming to avoid appearing forced by market expectations.
Global currency watchers are also focused on Australia and Japan. The Australian dollar remained stable at $0.6535 ahead of the Reserve Bank of Australia’s meeting, where rates are likely to stay firm following stronger-than-expected inflation. Meanwhile, the yen faces continued weakness unless the Bank of Japan tightens policy, as authorities previously intervened in 2022 and 2024 to support the currency. Market strategists suggest the yen may face further depreciation in the near term.
source: cnbc