The US Dollar held stable on Tuesday as traders assessed the likelihood of a Federal Reserve rate cut next month after policymakers delivered dovish remarks, while the Japanese Yen stayed under close watch for possible intervention.
On Monday, Fed Governor Christopher Waller noted that labour market softness could justify another 25-basis-point cut in December, although any further moves would hinge on a backlog of data held up by the federal government shutdown.
Waller’s remarks were in line with those made by New York Fed President John Williams on Friday. According to the CME FedWatch tool, traders now see an 81% probability of a rate cut next month, a sharp increase from 42% just a week earlier.
So far, the abrupt rise in expectations for rate cuts has had only a modest effect on the Dollar. The Euro was trading at $1.1522 at the time of writing, after a slight overnight uptick, and the Pound stood at $1.3097, Reuters reports.
Furthermore, the Dollar index, which tracks the currency against a basket of major peers, was nearly flat at 100.23.
With the central bank still missing key economic data, Fed officials remain split on what the next policy steps should be.
Investor confidence also got a boost from signs of warming US-China relations. President Donald Trump said on Monday that ties with China were “extremely strong” after a phone conversation with Chinese President Xi Jinping.
The call took place a few weeks after the two leaders met in South Korea, where they outlined a framework for a trade agreement that still awaits finalisation.
Even with the Dollar showing mild softness this week, the Japanese Yen has remained under pressure, hovering around 156.70 per Dollar and staying close to last week’s 10-month low of 157.90.
Markets are watching closely for any signs of official intervention to shore up the Yen, which has slid nearly 10 Yen since early October after Sanae Takaichi became Japan’s prime minister.
Verbal warnings from government officials have done little to halt the Yen’s decline. Many analysts think a formal intervention, like those seen last year and in 2022, may be approaching.
Traders estimate that authorities could step in once the currency moves into the 158 – 162 Yen per Dollar range, though they don’t expect such action to have a strong or lasting impact.