Currency Market Update

By Brigid Riley

TOKYO (Reuters) – The dollar drifted sideways on Wednesday, giving some relief to the yen and other major currencies after a sharp rally to a seven-week high last week. Investors are pausing to assess the interest rate outlook for the United States.

The New Zealand dollar fell to its lowest since August 19 at $0.6096 after the Reserve Bank of New Zealand (RBNZ) cut interest rates by 50 basis points, marking a 0.55% decrease to $0.61035.

A majority of economists in a Reuters poll last week anticipated the half percentage point cut, starting an easing cycle for the central bank from 15-year highs.

This week's U.S. data calendar is relatively light, giving a breather following a strong jobs report from last Friday. The report had sent the dollar soaring as markets recalibrated the expectations for upcoming interest rate reductions.

Investors are awaiting the minutes from the Fed's September meeting on Wednesday. It will detail discussions on a deteriorating labor market that saw most policymakers agreeing to a 50-basis point cut, although expectations for another large cut in November have diminished after recent nonfarm payroll data suggested resilience.

Markets currently estimate about an 85% chance of a quarter basis point reduction and a slim possibility of rates remaining unchanged, according to the CME FedWatch tool. The September Consumer Price Index report on Thursday is anticipated to be a significant piece of data this week.

According to analysts at Westpac IQ, "U.S. inflation data this week and upcoming corporate earnings will be key to sustaining the U.S. dollar rebound and will need to reinforce the U.S. exceptionalism narrative."

The dollar index, measuring the greenback against a basket of currencies, remained flat at 102.490, just below Friday's seven-week high of 102.69.

The euro steadied around $1.0977, while the pound stood at $1.3101, close to its more than three-week low of $1.30595 from Monday.

The dollar/yen traded in a narrow range, hovering around 148.28 yen, after reaching a seven-week high of 149.10 on Monday.

The Australian dollar struggled, sliding to $0.6715, its lowest since September 16. Following dovish sentiments from the latest central bank meeting, it traded down 0.08% at $0.67415.

Investor focus remains on China, following a volatile session in Chinese and Hong Kong markets. Beijing expressed confidence in achieving its full-year growth target but disappointed investors by not announcing stronger fiscal measures to support the economy.

The offshore yuan stabilized around 7.0695 per dollar.