TOKYO: The U.S. dollar traded in a narrow range on Thursday after hitting a two-week high in the previous session, supported by a rise in U.S. Treasury yields even as market players bet the U.S. Federal Reserve will cut interest rates next week.
The Aussie dollar surged after Australian employment beat forecasts, while the euro held steady ahead of the European Central Bank’s (ECB) monetary policy decision later in the day.
The greenback held on to a hefty portion of the previous day’s gains, helped by a rise in U.S. Treasury yields on Wednesday as the Treasury Department sold long-dated supply and data showed a widening U.S. budget deficit.
Wednesday’s consumer price index (CPI) report for November showed a 0.3% rise, the largest gain since April after advancing 0.2% for four straight months.
Markets now see a 98.6% probability that the Fed will cut rates by 25 basis points at its Dec. 17-18 meeting, compared with 78.1% a week ago, CME FedWatch tool showed.
Market players will get more U.S. inflation data later in the day when the producer price index (PPI) is published.
Unless it shows “strong increases” in categories that feed into personal consumption expenditures, the November CPI data should allow the Fed to go ahead with a cut, said Carol Kong, a currency strategist at Commonwealth Bank of Australia.
But the Fed’s rate path beyond December is less certain.
“The USD will likely stay bid while concerns about a stall in disinflation underpin current market pricing for a more gradual pace of FOMC rate cuts next year,” said Kong.
The dollar index, which measures the greenback against six major peers, fell 0.07% to 106.53, not far off a two-week high of 106.81 touched on Wednesday.
The dollar eased 0.21% to 152.14 yen after rising to 152.845 yen on Wednesday, its strongest level since Nov. 27.
Markets have further trimmed back expectations for a December rate hike from the Bank of Japan after Bloomberg news reported Japan’s central bank sees “little cost” to waiting.
Traders also had their eyes on news from China’s closed-door Central Economic Work Conference this week, after a Reuters report that China was considering allowing a weaker currency next year had the yuan on the defensive. The Politburo on Monday vowed to switch to an “appropriately loose” monetary policy to spur economic growth.
The offshore yuan was last at 7.2735 per dollar, up about 0.10%.
The Australian dollar was last up 0.6% at $0.64075, after sliding on Wednesday to $0.63370 for the first time since November 2023.
The kiwi gained 0.29% to sit at $0.58010 after hitting its lowest since November 2022 on Wednesday at $0.57625.
The euro traded at $1.0506, up 0.09% ahead of the ECB’s monetary policy meeting later today, where it is widely expected to deliver a quarter-basis-point cut. Focus will be on any hints of the central bank’s rate path outlook.
Sterling was up 0.14% at $1.2768.
The Swiss franc traded at 0.88315 per dollar, with markets weighing the prospect of a half-point rate cut on Thursday from the Swiss National Bank.
The dollar last fetched C$1.41435 after the Bank of Canada slashed its key policy rate by 50 basis points to 3.25% on Wednesday to help address slower growth.
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