(In Sept. 13 story, removes Mellon in BNY company name in 8th paragraph)
*
Media reports on possible larger Fed rate cut weigh on dollar
*
Ex-New York Fed chief Dudley says strong case for 50-bp move
*
US rate futures price in higher odds of 50-bp cut
*
University of Michigan sentiment improves
By Gertrude Chavez-Dreyfuss and Chibuike Oguh
NEW YORK, Sept 13 (Reuters) - The U.S. dollar fell on Friday to its
lowest level in nearly nine months against the Japanese yen after media reports
once again fueled speculation the Federal Reserve could deliver a super-sized
50-basis-point interest rate cut at its policy meeting next week.
Analysts said reports by the Wall Street Journal and Financial Times late on
Thursday saying a 50-bp rate reduction is still an option, and comments from a
former Fed official arguing for an outsized cut, caused a shift in market
expectations.
The U.S. rate futures market has priced in a 51% probability of a 50-bp
easing by the Fed at the conclusion of its two-day meeting on Wednesday, up from
about 15% early on Thursday. Futures traders have also factored in 117 bps of
cuts for 2024, up from 107 bps in the previous session.
The media reports introduced the probability of a 50-bp cut back into the
market after new inflation data had reinforced expectations of a 25-bp cut by
the Fed, said Brad Bechtel, global head of FX at Jefferies in New York. "So
you're just seeing a little bit of an unwinding of those positions that were
looking for 25 basis points."
In late afternoon trading, the dollar was down 0.66% to 140.855 yen
, after earlier dropping to 140.285, its lowest level since Dec. 28. On
the week, it fell 1%.
The euro, meanwhile, rose 0.08% versus the greenback to $1.1083.
The European Central Bank cut interest rates by 25 bps on Thursday, but ECB
President Christine Lagarde dampened expectations for another reduction in
borrowing costs next month. Gains in the euro have pushed the dollar index 0.08%
lower to 101.08.
"That increase in probabilities of potentially more dovish Fed policy drove
the dollar lower and pushed a lot of those other currencies higher, said John
Velis, FX and macro strategist at BNY in Boston.
The dollar trimmed losses after data showed U.S. consumer sentiment improved
in September amid easing inflation.
The University of Michigan's preliminary reading on the overall index of
consumer sentiment came in at 69.0 this month, compared with a final reading of
67.9 in August. Economists polled by Reuters had forecast a preliminary reading
of 68.5.
U.S. economic data this week appeared to support the case for a typical
25-bp cut next week, with the measure of consumer price inflation that strips
out volatile food and energy prices rising more than expected in August.
But former New York Fed President Bill Dudley on Friday added to the
speculation about a 50-bp Fed rate cut, saying there was a strong case for such
a move and that rates were currently 150-200 basis points above the so-called
neutral rate for the U.S. economy, where policy is neither restrictive nor
accommodative. "Why don't you just get started?," he said.
The euro "is eyeing $1.11 again after the combined support of a
not-dovish-enough European Central Bank and rising dovish bets on the Fed," said
Francesco Pesole, a currency strategist at ING.
Sterling edged slightly lower 0.01% to $1.31235, weakening after
reaching near its highest level in a week. The Bank of England is expected to
hold its key interest rate at 5% next week after kicking off its easing with a
25-bp reduction in August.
The dollar fell 0.38% against the Swiss franc to 0.84780 francs.
Investors were also looking to the Bank of Japan's interest rate decision
next Friday, when it is expected to keep its short-term policy rate target
steady at 0.25%.
BOJ board member Naoki Tamura said on Thursday the central bank must raise
rates to at least 1% as soon as the second half of the next fiscal year, but
added that it would likely do so slowly and in several stages.
"The BOJ is perceived to be going in the different direction than the Fed -
in 180-degree opposite direction," Velis said, adding that whether and when the
BOJ raises rates remains an open question.
Currency bid
prices at 13
September?
06:19 p.m. GMT
Description RIC Last U.S. Close Previous Session Pct Change YTD Pct High Bid Low Bid
Dollar index 101.06 101.16 -0.1% -0.31% 101.19 100.88
Euro/Dollar 1.1083 1.1074 0.08% 0.41% $1.1102 $1.1071
Dollar/Yen 140.87 141.76 -0.62% -0.12% 141.86 140.29
Euro/Yen 1.1083? 157.04 -0.57% 0.33% 157.09 155.63
Dollar/Swiss 0.848 0.8511 -0.35% 0.78% 0.8511 0.8445
Sterling/Dollar 1.3126 1.3126 0.01% 3.15% $1.3158 $1.3115?
Dollar/Canadian 1.3592 1.3581 0.11% 2.56% 1.36 1.3566
Aussie/Dollar 0.6708 0.6723 -0.21% -1.61% $0.6733 $0.6693
Euro/Swiss 0.9399 0.9425 -0.28% 1.22% 0.9427 0.9371
Euro/Sterling 0.8442 0.8438 0.05% -2.62% 0.8452 0.8428
NZ 0.6161 0.6183 -0.35% -2.49% $0.6193 0.616
Dollar/Dollar
Dollar/Norway 10.6581? 10.7119 -0.5% 5.16% 10.7237 10.6323
Euro/Norway 11.8134 11.8618 -0.41% 5.25% 11.8777 11.7937
Dollar/Sweden 10.217 10.2821 -0.63% 1.49% 10.2979 10.1892
Euro/Sweden 11.3246 11.3872 -0.55% 1.79% 11.4 11.303
Line of Credit 
Print
