Dollar Falls To Three-Month Low Against Yen As Powell Says Fed To Go Slow

The dollar tumbled to a three-month low versus the yen today as traders keyed on comments by Federal Reserve Chair Jerome Powell that interest rate hikes could be scaled back “as soon as December.”

The dollar-yen pair is extremely sensitive to changes in long-term US yields, which slid to a nearly two-month low of 3.6 per cent overnight after Powell said at the Brookings Institution in Washington that “slowing down at this point is a good way to balance the risks.” He added however that controlling inflation “will require holding policy at a restrictive level for some time.”

The greenback was 0.48 per cent lower at ¥137.39 (RM4.43) in the Asian morning, after earlier dipping to 137.27 for the first time since August 26, with yields on 10-year Treasury notes standing at 3.62 per cent in Tokyo.

“Market participants appear to have interpreted Powell’s speech as more dovish than hawkish,” pushing down US yields and the dollar, Kim Mundy, a strategist at Commonwealth Bank of Australia, wrote in a client note.

“The reaction supports the markets’ apparent ‘glass half full’ approach to the economic outlook at the moment.”

Markets are currently pricing 91 per cent odds that the Fed slows to a 50 basis point rate increase on December 14, and just 9 per cent probability of another 75 basis point bump, according to Reuters.

In November, the dollar dropped 7.15 per cent versus the yen, its worst month in 14 years, as investors positioned for a Fed pivot.

The dollar index ― which measures the currency against six major peers including the yen and euro ― extended yesterday’s more than 1 per cent drop into today, dipping as low as 105.69. It tumbled 5.2 per cent in November, its worst monthly showing since September 2010.

The euro rose 0.21 per cent to US$1.04325, and sterling added 0.23 per cent to US$1.2086.

A European survey yesterday showed that euro zone inflation eased far more than expected in November, raising hopes that sky-high price growth is now past its peak and bolstering, if not outright sealing the case for a slowdown in European Central Bank rate hikes next month.

The risk-sensitive Antipodean currencies gained, with the Aussie dollar last 0.17 per cent stronger at US$0.6800, after earlier touching US$0.68145 for the first time since September 13. New Zealand’s kiwi added 0.32 per cent to US$0.63175, the highest since August 17.

The Aussie and kiwi have also been buoyed by signs the Chinese government will relent on its strangling zero Covid policy, following the announcement of an easing of curbs in places including Guangzhou and Zhengzhou, the site of a Foxconn iPhone factory. 

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