NEW YORK, Nov 9 (Reuters) – The dollar edged lower on Thursday before a speech by Federal Reserve Chairman Jerome Powell, with markets focused on whether he will push back against last week’s fall in Treasury yields and the dollar on expectations that the U.S. central bank is done hiking interest rates.
Traders also remained on alert for potential intervention to shore up the struggling Japanese yen, which is holding above 150 against the U.S. currency and just above a one-year low reached last week.
U.S. government bond yields and the greenback tumbled last week after Powell was interpreted as striking a dovish tone after the Fed’s two-day meeting, with softer-then-expected jobs data on Friday adding to a belief that the Fed will stay on hold.
Some Fed officials on Tuesday, however, adopted a more hawkish outlook and stressed that further rate hikes remained on the table if inflation doesn’t continue to come down closer to the Fed’s 2% annual target.
“There was a pushback from Fed officials to try to reprice something a bit more hawkish – the Fed doesn’t want to let go of optionality in December or January for a hike,” said Adam Button, chief currency analyst at ForexLive in Toronto.
“I wonder if Powell doesn’t take another stab at that or lean a bit harder into the messages that we heard from several of them,” he added.
Fed funds futures traders are now pricing in only a 19% chance of an additional hike by January, down from 28% a week ago, according to the CME Group’s FedWatch Tool.
Chicago Fed President Austan Goolsbee said the U.S. central bank will need to pay close attention to the effects of higher longer-term bond yields to make sure they don’t slow the economy more than expected over the coming year, the Wall Street Journal reported on Thursday.
Philadelphia Fed President Patrick Harker said on Wednesday the central bank’s recent decision to hold rates steady was the right choice, and he reiterated that now is a time for the Fed to take stock of its aggressive actions before deciding what’s next for monetary policy.
A Reuters poll published on Thursday showed that economists expect the Fed to hold its federal funds rate steady through most of the first half of next year.
The dollar index was last down 0.11% on the day at 105.37. The euro gained 0.14% to $1.0724, and is just below Monday’s near two-month peak of $1.0765.
If Powell does adopt a more hawkish tone that may be seen in currency pairs like the euro/dollar, “where you’ve seen a lot of pressure from yields,” said Simon Harvey head of FX analysis at Monex Europe.
“The fundamentals of the European economy don’t warrant euro/dollar trading at current levels, so if we do get push back from Powell… that’s where there will be the most pain,” said Harvey.
The dollar dipped 0.08% to 150.86 Japanese yen but remained in striking difference of the 151.74 level reached last week after the Bank of Japan tweaked its ultra-loose monetary policy less than traders had expected.
Concerns that Japanese authorities will intervene to support the currency against the dollar has resulted in traders selling yen against the euro instead. The euro reached a 15-year top of 161.72 yen early on Thursday.
Bank of Japan Governor Kazuo Ueda said on Thursday the BOJ would keep its policy of yield curve control and negative rates “until necessary to hit 2% inflation in a sustained manner”.
In cryptocurrencies, Bitcoin jumped more than 5% to $37,978, the highest since May 2022.
Currency bid prices at 10:00AM (1500 GMT)
Reporting by Karen Brettell; Additional reporting by Alun John in London; Editing by Bernadette Baum
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