US dollar rallies on Fed outlook, potential Trump win; inflation weighs on pound
U.S. dollar hits fresh 11-week high
Sterling falls to two-month low
Fed rate futures now fully pricing in 25-bp rate cut
Adds new comment, graphic, updates prices
By Gertrude Chavez-Dreyfuss
NEW YORK, Oct 16 (Reuters) -The U.S. dollar firmed on Wednesday, hitting an 11-weekhigh, as investors ruled out a hefty interest rate cut from the Federal Reserve at the next policy meeting and priced ina potential election victory by former President Donald Trump.
Sterling, meanwhile, tumbled to its lowest in two months after softer-than-expected British inflation data offered scope for the Bank of England to cut rates more forcefully, while the euro slid toan 11-week low ahead of a European Central Bank meeting.
But with U.S. presidential elections a few weeks away, investors' focus has shifted to the highly-anticipated race,along with the Fed's interest rate path.
Trump's plan to implement tax cuts, looser financial regulations, and higher tariffs is viewed as positive for the dollar. Higher tariffs, for instance, would have negative implications for growth in Asian and European exporters that could force their central banks lower their interest rates, undermining their currencies, while lifting the dollar.
Amo Sahota, executive director at FX consulting firm Klarity FX in San Francisco pointed out that several major central banks are expected to undertake bigger rate cuts than the Fed because their economies are slowing much quicker than that of the United States. That has provided support for the dollar.
He also cited Trump's interview with Bloomberg News Editor-in-Chief John Micklethwait at the Economic Club of Chicago on Tuesday, where the former president doubled down on his plan to impose high tariffs on U.S. trading partners.
"Trump really went hard into the tariff conversation...although I think he's just making a point that he'll do whatever it takes to stop people from," flooding the market with foreign products at the expense of U.S.-made goods.
"Combined that with overnight polling showing Trump necking ahead here...and that's enough to leave the dollar at the top of the billing."
In afternoontrading, the dollar rose 0.3%to 103.59 =USD, after hitting an 11-week high of 103.60.
The euro, the dollar index's biggest component, fell 0.4%to $1.0855EUR=EBS, after earlier sliding to $1.0853, its lowest since early August.
Investors will be closely watching Thursday'sECB meeting, though if policymakers deliver the currently priced 25-bp cut and President Christine Lagarde refrains from giving too many clues about its rateoutlook, the market impact could be muted.
STERLING PRESSURE
The pound, meanwhile, was one of the biggest movers among major currencies, dropping 0.7%to $1.2982GBP=D3. It dipped under the $1.30 level for the first time since Aug. 20, after data showing the rate of annual consumer price inflation dropped to 1.7% in September from 2.2% in August. GBP=D3
That was the lowest reading since April 2021, and under the 1.9% forecast by a Reuters poll of economists. It reinforced bets on a BoE interest rate cut next month and made a further cut in December more likely.
The euro was last 0.5%higher against the pound at 83.62 pence. EURGBP=D3.
In the United States,traders have priced in a 97% chance of a 25-bp cut when the Fed next decides policy on Nov. 7, with a 3% probability of a pause, according to LSEG estimates. A month ago, traders saw 50-50 odds of a super-sized 50-bpreduction.
Against the yen, the dollaradded 0.4%against the yen to 149.765yen JPY=EBS, not far from Monday's high of 149.98 yen, the strongest since Aug. 1.
Bank of Japanboard member Seiji Adachi said on Wednesday the central bank must raise rates at a "very moderate" pace and avoid hiking prematurely given uncertainties about theglobal outlook and domestic wage developments.
In other currencies, the Australian and New Zealand dollars sagged as scepticism widened over stimulus from top trading partner China.
The Aussie AUD=D3 dropped to US$0.6659, the lowest since Sept. 12, and last traded at US$0.6663, down 0.6%. The New Zealand unit sank to US$0.6041, a level last seen on Aug. 19, and was last down 0.4%at US$0.6057NZD=D3.
Currency bid prices at 16 October 07:37 p.m. GMT | |||||||
Description | RIC | Last | U.S. Close Previous Session | Pct Change | YTD Pct | High Bid | Low Bid |
Dollar index | =USD | 103.55 | 103.26 | 0.29% | 2.15% | 103.6 | 103.17 |
Euro/Dollar | EUR=EBS | 1.0859 | 1.0893 | -0.31% | -1.62% | $1.0902 | $1.0854 |
Dollar/Yen | JPY=D3 | 149.76 | 149.23 | 0.36% | 6.18% | 149.795 | 148.88 |
Euro/Yen | EURJPY= | 1.0859 | 162.48 | 0.09% | 4.49% | 162.88 | 162.13 |
Dollar/Swiss | CHF=EBS | 0.8654 | 0.8622 | 0.39% | 2.84% | 0.8658 | 0.8615 |
Sterling/Dollar | GBP=D3 | 1.2981 | 1.3074 | -0.71% | 2.01% | $1.3075 | $1.298 |
Dollar/Canadian | CAD=D3 | 1.3755 | 1.3775 | -0.13% | 3.77% | 1.3793 | 1.3756 |
Aussie/Dollar | AUD=D3 | 0.6663 | 0.6703 | -0.58% | -2.25% | $0.6705 | $0.6659 |
Euro/Swiss | EURCHF= | 0.9397 | 0.9389 | 0.09% | 1.2% | 0.9412 | 0.9379 |
Euro/Sterling | EURGBP= | 0.8362 | 0.8331 | 0.37% | -3.53% | 0.838 | 0.8327 |
NZ Dollar/Dollar | NZD=D3 | 0.6056 | 0.6083 | -0.43% | -4.15% | $0.6086 | 0.6041 |
Dollar/Norway | NOK= | 10.9205 | 10.7989 | 1.13% | 7.75% | 10.936 | 10.8073 |
Euro/Norway | EURNOK= | 11.8599 | 11.7821 | 0.66% | 5.67% | 11.889 | 11.7724 |
Dollar/Sweden | SEK= | 10.5086 | 10.4016 | 1.04% | 4.39% | 10.518 | 10.4032 |
Euro/Sweden | EURSEK= | 11.4128 | 11.3441 | 0.61% | 2.58% | 11.419 | 11.3324 |
World FX rates https://tmsnrt.rs/2RBWI5E
UK inflation falls below the BoE's target in September https://reut.rs/3NsKZot
Reporting by Gertrude Chavez-DreyfusS; Additional reporting by Alun John in London and Kevin Buckland in Tokyo; Editing by Jamie Freed, Sherry Jacob-Phillips, Angus MacSwan, Alexandra Hudson and Diane Craft
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