Asian session review: the US dollar was little changed against major currencies

During today's Asian trading, the US dollar consolidated against major currencies, while uncertainty remained in the market about the scale of the Fed's monetary policy easing.

The US Dollar Currency Index (DXY), which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona) fell by 0.02% to 100.87. The Fed is likely to announce its first rate cut in over four years at 18:00 GMT. According to the CME FedWatch Tool, markets see a 61% probability of a 0.5% rate cut (up from 14% the week before), and a 39% probability of a 0.25% rate cut (down from 86% the week before). Many analysts expect a 0.25% rate cut, as history shows that the FOMC needs a good reason to start a monetary policy easing cycle with more than a 0.25% cut. As for the reaction of the US currency, the Fed's "dovish" position on a substantial easing path should generally lead to a weaker dollar, but the Fed's extremely "dovish" position may eventually scare markets if it seems that it expects a more significant downturn in the economy than previously thought, and in this case risk-sensitive and emerging market currencies may come under pressure.

The yen rose 0.6% against the US dollar, offsetting almost half of yesterday's drop (-1.28%) caused by strong US retail sales data, which weakened arguments in favor of a significant Fed rate cut. Market participants are also adjusting their positions ahead of the Bank of Japan meeting (on Friday). The consensus forecast is that the Central Bank will keep its interest rate at 0.25%. Although the economic prerequisites for further rate hikes by the Bank of Japan still remain, policymakers may remain on the sidelines for some time, given the recent market turmoil that took place in early August. Regarding the economic reasons for the interest rate hike, overall and core price pressures in Japan remain elevated, with the core consumer price index (excluding fresh food) accelerating slightly in July. At the moment, experts predict that the Central Bank will raise its interest rate by 25 basis points at meetings in January and April 2025, bringing the rate to 0.75% by the middle of next year.