Dollar falls against yen, US data leaves rate cut hopes intact By Reuters

By Saqib Iqbal Ahmed and Laura Matthews

NEW YORK (Reuters) -The dollar fell against the yen on Thursday, after the Bank of Japan’s less dovish remarks and U.S. data suggested upward price pressures continue to ease, keeping the Federal Reserve on track to cut interest rates by 25 basis points next week.

Data on Thursday showed U.S. consumer spending increased slightly more than expected in September, putting the economy on a higher growth trajectory heading into the final three months of the year.

Inflation by the Fed’s targeted measure, the year-over-year increase in the personal consumption expenditures index, was 2.1% in September, down from an upwardly revised 2.3% in August, a Commerce Department report showed. The Fed aims for 2% inflation.

“The baseline is still that they cut by 25 basis points next week,” said Thierry Wizman, global FX and rates strategist at Macquarie in New York.

But with U.S. inflation expectations on the rise, Wizman said, the Fed may pay attention to that and may consider not cutting rates.

“Even with the market having adjusted somewhat, it would still come as a surprise,” he said.

The Fed is likely to go ahead with cutting short-term U.S. borrowing costs by a quarter percentage point next week, traders bet on Thursday, with futures contracts putting the chances of a 25 basis point cut next week at 94.7%.

The dollar also came under pressure against the yen after the Bank of Japan took a less dovish tone than expected, while the euro was stronger after data showed that the euro zone’s inflation accelerated more than expected in October, bolstering the case for caution in European Central Bank interest rate cuts.

The dollar was down 0.8% against the yen at 152.18 yen, and the euro was last 0.04% higher against the dollar at $1.0859.

“Some of the move is likely a function of yen demand after a marginally more hawkish BoJ during the Asia session, as well as some upside in the euro after hotter-than-expected CPI figures dented the chances of a 50 basis points December ECB cut,” said Michael Brown, senior research strategist at Pepperstone.

Traders were also likely taking the opportunity to book profits after the dollar’s strong run in recent weeks, Brown said.

The , which measures the U.S. currency’s strength against a basket of major peers, rose as much as 4.5% from its September lows.

Attention now turns to Friday’s closely watched nonfarm payrolls report and the U.S. presidential election on Tuesday.

Economists polled by Reuters estimate 113,000 jobs were added in October, although the number could be lower due to recent hurricanes.

“A slightly hotter or slightly cooler (jobs) number to me probably doesn’t change the dial too much given the upbeat trend in recent economic data,” said IG Market Analyst Tony Sycamore.

“It makes sense to me to be … taking some risk off and moving to the sidelines” ahead of a week that will “set the tone for the end of the year,” he said.

Some investors have been putting on trades betting Republican candidate Donald Trump will win, helping to lift the dollar and U.S. Treasury yields, although he remains neck and neck with Democratic Vice President Kamala Harris in several polls.

Trump’s pledges to implement tax cuts, loosen financial regulations and raise tariffs are seen as inflationary and could slow the Federal Reserve in its policy easing path.  

On Thursday, the BOJ maintained ultra-low interest rates but said risks around the U.S. economy were somewhat subsiding, signaling that conditions are falling into place to raise interest rates again.

Governor Kazuo Ueda’s remarks were seen as less dovish than those made before the meeting that the BOJ could “afford to spend time” scrutinising the fallout from risks such as U.S. economic uncertainties.

Elsewhere, sterling fell 0.8% to $1.2857, a day after British finance minister Rachel Reeves launched the biggest tax increases since 1993 in her first budget.

In cryptocurrencies, bitcoin, the world’s largest cryptocurrency by market cap, was 3.2% lower at $70,458, about 4% shy of its record high from March.