US dollar rises as yen weakness resumes

NEW YORK – The US dollar rose against most currencies on Tuesday, steadily gaining ground throughout the day as investors digested the latest comments from Federal Reserve officials about the possible path of interest rates.

Minneapolis Federal Reserve President Neel Kashkari said at a Milken Institute conference that stalled inflation, kept higher in part by housing market strength means the central bank will need to hold borrowing costs steady for an “extended period,” and possibly all year.

Kashkari did, however, also say it is still possible the Fed could cut if inflation being to cool again.

The comments came on the heels of remarks from Fed officials on Monday that seemed to lean toward indicating the central bank’s next move would be to lower interest rates.

“There isn’t any consistent trend here other than what we’ve seen and that does not point to lower rates as much as various people in the market certainly and maybe even some people in the Fed itself would like,” said Joseph Trevisani, senior analyst at FX Street in New York.

The dollar index gained 0.26% to 105.42, on track for its first consecutive daily gain in nearly a month, with the euro down 0.18% at USD 1.0749.

The greenback strengthened against the Japanese yen for a second straight session as expectations of large interest rate differentials continued, even after new warnings from Japanese officials about their willingness to prop up their currency.

Japan’s top currency diplomat Masato Kanda said the country may have to take action against any disorderly, speculative-driven foreign exchange moves, signaling the Bank of Japan remained ready to intervene in the market after two suspected interventions of possibly almost USD 60 billion last week.

“The big action last week and a little bit before was the BOJ, which has achieved some success, but there’s nothing really to go on right now, so things are just sort of sitting still,” said Trevisani.

Against the Japanese yen JPY=, the dollar strengthened 0.55% to 154.73 after tumbling more than 3% last week, its biggest weekly percentage drop since early December 2022.

Following last week’s Fed policy meeting and softer-than-expected US jobs report, market expectations for two rate cuts this year have increased, with expectations for a cut of at least 25 basis points in September currently at 64.5%, according to CME’s FedWatch Tool.

With a light economic calendar this week, highlighted by the consumer sentiment reading from the University of Michigan on Friday, a host of Fed officials are due to speak, including Fed Governors Lisa Cook and Michelle Bowman later in the week.

The Australian dollar fell against the greenback after the Reserve Bank of Australia kept rates steady and held back from taking a hawkish stance, although RBA Governor Michele Bullock cautioned inflation risks were on the upside, signaling policy was unlikely to be eased anytime soon.

The Australian dollar weakened 0.53% versus the greenback at USD 0.6589 after falling as low as 0.6587 on the day.

Sterling weakened 0.46% to USD 1.2503 ahead of the Bank of England’s policy announcement on Thursday, where interest rates are expected to be kept unchanged.

(Reporting by Chuck Mikolajczak; Editing by Mark Potter and Jonathan Oatis)