Dollar eyes monthly gain as markets look to Fed By Reuters

By Tom Westbrook

SINGAPORE (Reuters) -The dollar headed for its biggest monthly gain since September and the yen for its sharpest drop in nearly a year on Wednesday, as traders waited on a U.S. rates decision to round out January.

The dollar has gained 2% against a basket of major currencies this month as markets dialled back expectations on the speed and scale of rate cuts in the face of strong U.S. economic data and pushback from central bankers.

In Japan, meanwhile, tepid wage growth and cooling inflation dulled expectations for hikes, driving the yen down more than 4% on the dollar in January, its largest fall since Feb. 2023.

The dollar was steady at $1.0844 per euro and a touch weaker at 147.23 yen early in the Asia day, with a summary showing discussion of ending negative interest rates at the Bank of Japan’s January meeting helping support the yen.

The last sat at 103.36. Sterling hovered at $1.2698. [GBP/]

Later, the Federal Reserve is expected to hold U.S. interest rates steady but flag cuts are coming by dropping language indicating it is weighing further hikes.

Interest rate futures price a roughly 43% chance of a Fed rate cut in March, down from 73% at the start of the year.

“The market reaction to the (Fed) meeting and its spillover onto most asset markets is likely to be largely captured by the impact on the probability of a rate cut at the March meeting,” said Deutsche Bank (ETR:)’s chief international strategist Alan Ruskin.

The pricing tends to influence the euro/dollar rate, he noted, with a 50-50 probability consistent with the euro at $1.087. “A 100% probability of a rate cut would point to euro/dollar at $1.1080, while a rate cut that is fully ruled out for March would point the way to euro/dollar at $1.0660,” he said.

Ahead of the Fed, European inflation figures are expected. Australian inflation came in marginally below economist forecasts, reinforcing bets the central bank is done hiking.

The slipped 0.2% to $0.6588. The New Zealand dollar was steady at $0.6133. [AUD/]

Expectations of interest rate cuts in China have driven a strong rally in the bond market this month while the yuan has been squeezed by flight from China’s crumbling equity markets.

The Chinese currency held at 7.1781 on Wednesday, down 1% for the month. China’s manufacturing activity in January contracted for a fourth straight month, an official survey showed, suggesting the sprawling sector was struggling for momentum.

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Currency bid prices at 0153 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar

$1.0835 $1.0845 -0.09% +0.00% +1.0847 +1.0835

Dollar/Yen

147.5650 147.6100 -0.02% +0.00% +147.6000 +147.2050

Euro/Yen

159.88 160.07 -0.12% +0.00% +160.0700 +159.6500

Dollar/Swiss

0.8622 0.8619 -0.02% +0.00% +0.8622 +0.8617

Sterling/Dollar

1.2687 1.2701 -0.10% +0.00% +1.2700 +1.2688

Dollar/Canadian

1.3411 1.3398 +0.10% +0.00% +1.3411 +1.3395

Aussie/Dollar

0.6573 0.6603 -0.46% +0.00% +0.6603 +0.6571

NZ

Dollar/Dollar 0.6125 0.6136 -0.19% +0.00% +0.6136 +0.6124

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ