Dollar on defensive as September Fed cut bets ramp up
FILE PHOTO: U.S. dollar banknotes are seen in this illustration taken March 19, 2025. REUTERS/Dado Ruvic/Illustration/File Photo
(Corrects paragraph three to reflect that France's prime minister called the confidence vote on Monday, not on Wednesday.)
By Kevin Buckland
TOKYO :The dollar struggled to make headway against major peers on Thursday as traders added to bets for a Federal Reserve interest rate reduction next month after New York Fed chief John Williams signaled a cut was possible.
The U.S. currency is also under renewed pressure from President Donald Trump's ramped-up campaign to exert more influence over monetary policy decisions, as he attempts to fire Fed Governor Lisa Cook and replace her with a loyalist.
The dollar was on the back foot against the euro even after France's prime minister on Monday unexpectedly called a confidence vote for next month, which is likely to result in the fall of his minority government.
The dollar index, which gauges the currency against six major peers, was steady at 98.145, following two days of declines.
The euro was little changed at $1.1640, and sterling edged up slightly to $1.3505.
The dollar slipped 0.14 per cent to 0.8015 Swiss franc, while sliding 0.19 per cent to 147.11 yen.
Japan's chief trade negotiator Ryosei Akazawa canceled a trip to Washington at the last minute on Thursday, delaying an announcement of the details of Japan's $550 billion investment pledge in the United States as part of a tariff deal.
A government spokesperson said the decision was taken after talks with the U.S. side revealed some points that need further discussion "at the administrative level".
On the U.S. monetary front, the Fed's Williams said in an interview with CNBC on Wednesday that "every meeting is, from my perspective, live."
"Risks are more in balance," he said. "We are going to just have to see how the data play out."
Key among data releases ahead of the Fed's September 16-17 policy meeting is the PCE price index on Friday - the Fed's preferred inflation measure - and the monthly payrolls report a week later.
Traders currently lay around 89 per cent odds of a quarter-point rate cut next month, and have priced in a cumulative 55 basis points of easing by year-end, according to LSEG data.
That helped send two-year Treasury yields, which are extremely sensitive to policy expectations, sliding to the lowest level since May 1 overnight, adding to pressure on the dollar.
President Trump's push to place hand-picked, dovish-leaning candidates into the central bank's decision-making committee also pulled short-term yields lower, even though his attack on Governor Cook could spark a protracted legal battle after she sued to keep her job.
"The crux of the issue lies with whether Trump can remove Cook before March," when the 12 reserve bank presidents have to be reappointed by the board of governors, DBS analysts wrote in a note.
In such a case, Trump could install his own, dovish picks, and as a result, "a more aggressive rate cut pace - one every meeting or even jumbo cuts - 50 bps at a go - may be in the offing," they wrote.
The dollar edged 0.03 per cent lower to 7.1495 yuan in offshore trading.
The Australian dollar was steady at $0.6507, following a 0.4 per cent climb over the previous two sessions.
Bitcoin rose 0.4 per cent to around $112,913.
