Dollar Dips Amid Federal Reserve Rate Cut Anticipation

The dollar fell against the yen, euro, and sterling due to speculation on Federal Reserve interest rate cuts. Fed Chair Jerome Powell's recent comments supported market expectations. Despite the dip, the dollar remained stable against some major currencies with the Bank of Japan and the Bank of England also playing pivotal roles.

The dollar experienced a significant decline against the yen on Monday, hitting its lowest level in three weeks. It also maintained near multi-month lows against the euro and sterling as investors weighed the likelihood of the Federal Reserve initiating a series of interest rate cuts soon. The greenback fell by as much as 0.7% to 143.45 yen, its weakest point since August 5, before recovering to a 0.4% loss.

Despite the dip against the yen, the dollar firmed against the euro and sterling after having touched new multi-month lows last week. Market participants remained cautious due to escalating tensions in the Middle East. Federal Reserve Chair Jerome Powell, in a highly anticipated speech at the Jackson Hole economic conference, endorsed the imminent start of interest rate cuts, emphasizing that further cooling of the job market would be unwelcome.

Market expectations of Federal Reserve action were bolstered by Powell's comments, with traders anticipating a loosening campaign to kick off on September 18. However, opinions differ on the extent of the rate cuts, with some traders predicting a 50-basis point reduction. Meanwhile, Bank of Japan's Kazuo Ueda reiterated his commitment to raising interest rates if inflation persists, and the Bank of England's head Andrew Bailey suggested a less aggressive stance on rate cuts.

(With inputs from agencies.)