- Powell suggested that rising market interest rates could reduce the need for central bank action.
- The dollar strengthened against the yen, touching 150 before retreating.
- British consumer confidence dropped in October.
Currency futures ended slightly higher on Friday as the dollar weakened on reduced bets for a Fed rate hike in December.
ING analyst Francesco Pesole noted that the dollar was not benefiting as much as it should from strong US data and its high rate advantage, likely due to its overbought status. The dollar weakened on Thursday after Fed Chair Jerome Powell suggested that rising market interest rates could reduce the need for central bank action.
The probability of a Fed rate hike in December dropped to 24% after Powell‘s comments, down from 39% before his remarks. According to the CME Group’s Fed Watch Tool, a November pause is almost certain, but rate cuts are not likely until June.
The dollar strengthened against the yen, touching 150 before retreating. If the dollar surpasses 150, it could prompt Japanese monetary officials to intervene due to concerns about the currency weakening.
On October 3, it hit 150.165 but quickly dropped back to 147.3. It’s unclear whether the drop was due to intervention by the Ministry of Finance (MOF) or market dynamics, including trading stop losses and automated trades. The Ministry of Finance’s decision to intervene may depend on the speed and extent of the dollar’s move above 150.
Despite benchmark 10-year Treasury yields reaching 16-year highs, the dollar rally has stalled since October 3. According to Adam Button from ForexLive, the potential for MOF intervention has been limiting the dollar’s gains.
Button stated, “I think the dollar would otherwise be stronger if not for the threat of intervention from Japanese monetary officials.” Additionally, some analysts believe the overcrowded number of investors holding dollars hinders further rallies.
Investors were also monitoring the situation in the Middle East for any signs of escalation in the conflict between Israel and Hamas.
Meanwhile, the pound fell briefly due to data releases indicating a decline in British consumer confidence, following weak retail sales in the previous month.
UK consumer confidence (Source: Bloomberg; GfK)
British consumer confidence dropped in October, reversing the uptrend observed in September when it reached its highest level since the beginning of 2022. This decline in confidence reflects renewed worries among households regarding the prospects of their finances and the overall economic situation.