The dollar fell to a three-month low against the yen on Thursday as traders took advantage of comments by Federal Reserve Chairman Jerome Powell that interest rate hikes could be scaled back “as soon as December.”
The dollar-yen pair is extremely sensitive to changes in long-term US yields, which fell to a near two-month low of 3.6% overnight after Powell told the Brookings Institution in Washington that “a slowdown at this point is a good way to balance risks”.
However, he added that controlling inflation “will require keeping policy at a restrictive level for some time.”
In Asian morning trading, the dollar was down 0.48% at 137.39 yen, after earlier falling to 137.27 for the first time since Aug. 26, while the 10-year Treasury note yielded 3.62% in Tokyo.
Kim Mundy, a strategist at Commonwealth Bank of Australia, wrote in a note to clients: “Market participants appear to have taken Powell’s speech as more dovish than hawkish,” sending US yields and the dollar lower.
“This reaction supports the markets’ apparent ‘glass half-full’ approach to the economic outlook.
Markets are currently pricing in a 91% chance that the Fed will slow its rate hike by 50 basis points on December 14, and only a 9% chance of another 75 basis point increase.
The dollar fell 7.15% against the yen in November, its worst month in 14 years, as investors awaited a U-turn from the Fed.
The dollar index, which measures the currency against six major peers including the yen and the euro, extended Wednesday’s slide of more than 1% on Thursday, falling to 105.69.
It fell 5.2% in November, the worst monthly performance since September 2010.
The euro rose 0.21% to $1.04325, while the pound sterling added 0.23% to $1.2086.
Eurozone inflation fell more than expected in November, a European survey showed on Wednesday, boosting hopes that skyrocketing price rises have peaked and bolstering, if not outright closing, the case for slowing the European Central Bank’s next rate hike month.
Antipodean risk-sensitive currencies rose, with the Australian dollar gaining 0.17% to $0.6800 after earlier touching $0.68145 for the first time since September 13.
The New Zealand kiwi added 0.32% to $0.63175, the highest since August 17.
The Australian and Kiwi were also buoyed by signs that the Chinese government would abandon its zero-choice policy for COVID after announcing easing curbs in places like Guangzhou and Zhengzhou, home to Foxconn’s iPhone manufacturing plant.
