The Dollar Falls To A 3-Month Low Against The Yen As Powell Says Fed Will Go Slow On Raising Interest Rates

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On Thursday, the dollar rapidly decreased to a three-month low against the yen as Jerome Powell’s statement about interest rate hikes being possibly put off “until December” circulated among traders.

On Wednesday, Jerome Powell stated that “slowing down at this point is a good way to balance the risks,” controlling inflation will still need interest rates to stay relatively high for an extended period.

The greenback is currently at its lowest level in over a month, having fallen 1.32% to 136.295 yen.

Even the slightest change in long-term U.S. Treasury yields significantly impacts the dollar-yen exchange. Just overnight, they fell to a two-month low of 3.6% after Powell’s comments; this morning in Tokyo, they sit at 3.6163%.

“Although the speech was less hawkish than initially anticipated, it still resulted in…” said Rodrigo Catril, senior FX strategist at National Australia Bank. “When you analyse the significant movement in long-term U.S. rates, it makes sense that the yen is leading the charge.”

“However, the market reaction to this news is strange,” Catril said. “The Fed chair merely repeated what he has been saying for a while now: that we should expect a smaller interest rate hike at the next meeting on December 14. But then he added that they’re not done yet and that we should be expecting a much higher terminal rate.”

The market is suggesting a 91% chance the Fed will increase rates by at least 50 basis points, with the next meeting being 9% likely to see another 75-basis-point hike. The probability falls below 5% around May.

Despite the uncertainty in the market, traders are still keeping an eye on how this news will impact other currencies, such as the euro and pound. Analysts say that a strong dollar would make U.S. goods more expensive for foreign buyers; this could harm markets, primarily those dependent on exports to support their growth.

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