US Dollar Weakens as New York Fed President's Dovish Comments Fuel Rate Cut Expectations

(New York=Yonhap Infomax) Jin Woo Choi – The US dollar traded slightly lower, reversing earlier gains driven by safe-haven demand after dovish remarks from John Williams, President of the Federal Reserve Bank of New York, heightened expectations for interest rate cuts.

The yen strengthened on the back of hawkish comments from the Bank of Japan (BOJ) Governor and signals from Japan’s finance minister suggesting possible intervention in the foreign exchange market.

According to Yonhap Infomax (screen number 6411), as of 08:20 AM Eastern Time on the 21st, the US Dollar Index (DXY), which measures the greenback against six major currencies, stood at 100.204, down 0.047 points (0.047%) from the previous close of 100.251.

In a speech at the Central Bank of Chile’s centennial conference in Santiago, Williams stated, “I still see the possibility of further adjustments to the target range for the federal funds rate (FFR) in the near term to move policy closer to neutral.”

This signaled the potential for additional rate cuts. Williams, who serves as Vice Chair of the Federal Open Market Committee (FOMC), holds a permanent voting seat.

According to CME FedWatch, as of 08:05 AM in New York, the federal funds futures market priced in a 70.9% probability that the Federal Reserve will cut rates by 25 basis points in December, a sharp increase of over 30 percentage points from the previous day’s 39.1%.

The euro-dollar exchange rate fell to $1.15188, down $0.00073 (0.063%) from the previous session.

According to S&P Global and Hamburg Commercial Bank (HCOB), the eurozone’s preliminary composite Purchasing Managers’ Index (PMI) for November came in at 52.4, above the 50 threshold that separates expansion from contraction, but slightly below both the previous month’s reading (52.5) and market expectations (52.5).

The dollar-yen exchange rate dropped to 156.840 yen, down 0.737 yen (0.468%) from the previous close.

BOJ Governor Kazuo Ueda told parliament that the “feasibility and timing” of a rate hike would be discussed at the upcoming monetary policy meeting. He also noted that the impact of exchange rates on inflation should be considered, emphasizing, “We must keep in mind that price increases can affect both expected and underlying inflation.” Ueda’s remarks were widely viewed as hawkish.

Takeshi Minami, analyst at Norinchukin Research Institute, said, “The BOJ is likely to raise rates in December. The government does not want a weak yen and will tolerate a rate hike to prevent further currency depreciation.”

Japanese Finance Minister Satsuki Katayama also warned in Asian trading that “foreign exchange intervention is an option to address excessive volatility and speculative moves.”

Lee Hardman, senior FX strategist at Mitsubishi UFJ, commented, “Last night’s warning from Japan was clearly a step up from what we’ve seen recently.”

The offshore dollar-yuan (CNH) rate fell to 7.1114 yuan, down 0.0069 yuan (0.097%) from the previous session. The pound-dollar rate rose to $1.30875, up $0.00175 (0.134%).

The dollar-Swiss franc rate edged up to 0.8067 Swiss francs, a gain of 0.0007 francs (0.087%).

Swiss National Bank (SNB) President Martin Schlegel said the central bank is prepared to implement negative policy rates if necessary, though he noted the “bar” for such a move is high.

jwchoi@yna.co.kr

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