By Kevin Buckland
In a dramatic turn of events, the dollar plunged to a three-week low against the yen on Monday as Federal Reserve Chair Jerome Powell’s strong dovish stance clashed with the steadfastly hawkish tone of Bank of Japan chief Kazuo Ueda. This comes as the U.S. currency also struggled against the euro and sterling, with Bank of England head Andrew Bailey’s cautious comments on inflation signaling a less aggressive approach to interest rate cuts compared to the Fed.
The dollar dropped as much as 0.66% to 143.45 yen, its lowest level since Aug. 5, before recovering slightly to trade down 0.31% as of 0517 GMT. Sterling also saw a slight dip to $1.31995 after reaching a high of $1.32295 on Friday, its highest level in 17 months.
Market experts noted that Powell’s use of stronger language in his keynote speech at the Fed’s annual Jackson Hole symposium, without any caveats for gradual rate cuts, excited markets and left the door open for larger rate reductions. On the other hand, Ueda’s remarks in Tokyo emphasized the need for the BOJ to adjust the degree of easing, signaling a potential further increase in the policy rate.
Looking ahead, traders are anticipating the Fed to begin its loosening campaign on Sept. 18, with increasing odds of a 50-basis point reduction. Meanwhile, the Bank of England’s stance remains less dovish than its counterparts in the U.S. and Europe.
Despite expectations of another rate cut by the European Central Bank, the euro remained steady at $1.1184, while the dollar index, which measures the currency against a basket of major peers, hovered near a 13-month low.
Other currencies also saw movements, with the Australian dollar retreating slightly and leading cryptocurrency bitcoin adding to its value.
Overall, the shifting tones of central banks and the potential for larger rate cuts by the Fed are signaling a complex and uncertain global economic landscape. Traders and investors should closely monitor these developments to make informed decisions about their portfolios and financial strategies.
