Dollar drops against yen, hovers at multi-month lows versus euro in wake of Powell comments
Updates prices as of 0901 GMT
By Kevin Buckland and Sruthi Shankar
TOKYO, Aug 26 (Reuters) -The dollar fell to a three-week trough against the yen on Monday and steadied near multi-month lows against the euro and sterling as investors weighed the prospect of the Federal Reserve soon starting on a series of interest rate cuts.
The dollar slumped as much 0.7% to 143.45 yen JPY=EBS, its weakest level since Aug. 5, and was last trading down 0.4%.
The greenback however firmed against the euro EUR=EBS and sterling GBP=D3 after having touched new multi-month lows last week. Traders were also keeping an eye on the fallout from escalating tensions in the Middle East.
In a much-anticipated speech on Friday at the annual economic conference in Jackson Hole, Wyoming, Fed Chair Jerome Powell endorsed an imminent start to interest rate cuts, declaring further job market cooling would be unwelcome.
"Powell did not say anything new but officially validated some of the things that markets were pricing in, including the idea of a cut, shift of focus from inflation to labour market," said Samy Chaar, chief economist at Lombard Odier in Geneva.
However, he did not see the dollar falling much more in the short term.
"Huge dollar weakness from here would mean that the market is not pricing in enough cuts which I feel is a bit of an exaggeration."
Traders unanimously expect the Fed to kick off its loosening campaign on Sept. 18, but see about 39% odds of a super-sized 50-basis point reduction, according to the CME Group's FedWatch Tool. That's up from 25% odds a week earlier.
The dollar index =USD - which measures the currency against a basket of six major peers - was flat at 100.71, just off the 13-month low of 100.60 reached at the end of last week.
Trading activity was expected to be lighter than usual, with UK markets closed for a public holiday.
YEN STILL FIRM
Helping the yen strengthen, Bank of Japan chief Kazuo Ueda on Friday reaffirmed his resolve to raise interest rates if inflation stayed on course to sustainably hit the 2% target.
Many market participants expected Ueda to strike a less hawkish tone in a special session of parliament, which was called amid criticism the BOJ's surprise hike last month helped spark a rapid unwind of bearish yen bets and an aggressive sell-off of Japanese stocks.
The U.S. currency hovered near its lowest in 13 months against the euro, and sagged closer to levels last seen in March 2022 versus sterling, with Bank of England head Andrew Bailey's comments that it was "too early to declare victory" over inflation signalling a less aggressive stance on interest rate cuts than the Fed.
Sterling GBP=D3 eased slightly to $1.3199 after jumping as high as $1.32295 on Friday for the first time in 17 months.
Sources told Reuters that ECB policymakers are lining up behind another rate cut on Sept. 12. The euro EUR=EBS slipped to $1.1180, but not far from its session high of $1.1205, a level last seen in July of last year.
The Swiss franc CHF=EBS edged up about 0.1% to 0.8459 per dollar, its strongest level since Aug. 5.
Elsewhere, the Australian dollar AUD=D3 retreated 0.31% to $0.6775, but remained not far from Friday's peak of $0.6799, the highest level since July 11.
World FX rates https://tmsnrt.rs/2RBWI5E
Reporting by Kevin Buckland in Tokyo and Sruthi Shankar in Bengaluru; Editing by Shri Navaratnam and Susan Fenton
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