Dollar Weakens as Yen Surges Amid Fed Rate Cut Speculation

The dollar dropped against the yen as market expectations grew for a significant Federal Reserve rate cut. Investors are eyeing the Fed's upcoming decision, with speculation on whether it will implement a half-point or a quarter-point cut. Treasury yields declined, aligning with the anticipated rate cut.

The dollar dipped on Monday, hitting its lowest point against the yen in over a year as anticipation of a substantial rate cut from the Federal Reserve built up ahead of its meeting this week. The dollar traded at 140.01 yen at 1140 GMT, after plunging to 139.58 yen during the trading session.

This marks a continued depreciation from Friday's 140.285 end-December low, reaching levels unseen since July 2023. The Federal Reserve's September meeting is closely watched this week, along with policy announcements from the Bank of England and Bank of Japan on Thursday and Friday, respectively.

Market sentiment has fluctuated over the past month based on Fed speaker statements and data, debating the course of action the Fed will take amidst labour market concerns. Futures markets are now fully pricing in a quarter-point rate cut on Wednesday, though there is a notable 60% chance for a 50 basis point cut, up from 15% last week.

(With inputs from agencies.)