On Monday, the dollar fell to a new six-week low against the yen. Meantime investors continued to bet that the Federal Reserve would refrain from tightening monetary policy in light of the U.S. economy’s potential for a recession.
For the first time since June 16, the dollar fell as low as 132.07 yen. It recently traded 0.45%, down at 132.605. The benchmark 10-year Treasury yield is now hanging at 2.67 percent after falling to its lowest level since early April at 2.618 percent at the end of last week. As a result, the currency pair is very sensitive to movements in these yields. The dollar index (DXY) compares the dollar value to six other currencies, including the yen. It was down 0.18 percent to 105.80. DXY moved closer to Friday’s low of 105.53, which hadn’t been seen since July 5.
The personal consumption expenditures (PCE) price index indicated the fastest inflation since 2005. Fed policymakers frequently follow the final University of Michigan survey. It showed decreasing consumer inflation expectations. This outcome prompted the dollar to decline after initially strengthening. Friday’s monthly U.S. jobs data will be the main economic topic of discussion this week.
The probability that the Fed will maintain its current 75 basis-point rate rise pace at its upcoming meeting on September 21 is now about 31%. A lower half-point increase has a 69 percent chance.
The euro was little changed at $1.02235, maintaining its recent week and a half-long consolidation at the middle of its range. Sterling remained unchanged at $1.2183 after reaching its highest level since June 28 on Friday at $1.2245. According to the markets, the Bank of England should raise interest rates by half a point on Thursday, compared to a quarter-point increase being more likely (33%). With just a 16% possibility of a lower quarter-point tightening, the Reserve Bank of Australia should deliver another half-point hike when it determines policy on Tuesday.
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