Written by Brigid Riley
TOKYO (Reuters) – The U.S. dollar traded in a narrow range on Thursday after hitting a two-week high in the previous session, supported by rising U.S. Treasury yields even as market participants bet the U.S. Federal Reserve will cut interest rates next week. .
The dollar rose after Australian employment rates beat expectations, while the euro stabilized ahead of the European Central Bank's monetary policy decision later in the day.
The dollar held on to a large portion of the previous day's gains, supported by a rise in US Treasury yields on Wednesday as the Treasury sold off long-term supplies and data showed a widening US budget deficit.
Wednesday's Consumer Price Index (CPI) report showed a 0.3% rise, the largest increase since April after rising 0.2% for four straight months.
The CME FedWatch tool showed that markets now see a 98.6% probability that the Fed will cut interest rates by 25 basis points at its meeting on December 17-18, compared with 78.1% a week ago.
Market participants will get more US inflation data later today when the Producer Price Index (PPI) is published.
Unless “strong increases” are seen in the categories fueling personal consumption expenditures, November CPI data should allow the Fed to proceed with the cut, said Carol Kong, currency strategist at the Commonwealth Bank of Australia (OTC).
But the Fed's interest rate path after December is less certain.
“The US dollar is likely to remain on offer as concerns about stalling inflation support current market pricing for a more gradual pace of FOMC interest rate cuts next year,” Kong said.
The index, which measures the greenback against six major currencies, fell 0.07% to 106.53, not far from the two-week high of 106.81 it touched on Wednesday.
The dollar fell 0.21 percent to 152.14 yen after rising to 152.845 yen on Wednesday, its strongest level since November 27.
Markets trimmed their expectations for the Bank of Japan to raise interest rates in December after Bloomberg News reported that the Japanese central bank sees “little cost” in waiting.
Traders are also monitoring news from China's closed Central Economic Work Conference this week, after a Reuters report that China is considering allowing a weaker currency next year put the yuan on the defensive.
The Politburo pledged on Monday to shift to an “appropriately loose” monetary policy to stimulate economic growth.
The latter was at 7.2735 to the dollar, up about 0.10%.
The Australian dollar rose in recent transactions by 0.6 percent to 0.64075 US dollars, after falling on Wednesday to 0.63370 US dollars for the first time since November 2023.
It rose 0.29% to settle at $0.58010 after hitting its lowest level since November 2022 on Wednesday at $0.57625.
The euro was trading at $1.0506, up 0.09% ahead of the European Central Bank's monetary policy meeting later today, where it is widely expected to cut by a quarter of a basis point. The focus will be on any hints about the central bank's expectations of the interest rate path.
The British pound rose 0.14 percent to $1.2768.
The Swiss franc was trading at 0.88315 to the dollar, as markets considered the possibility of a half-point interest rate cut on Thursday from the Swiss National Bank.
The dollar last recorded C$1.41435 after the Bank of Canada cut its key interest rate by 50 basis points to 3.25% on Wednesday to help address slowing growth.
