Recent hawkish comments from Fed Governor Christopher Waller, who urged caution in cutting rates too aggressively, have contributed to the dollar's strength. Traders have assigned a nearly 90% probability to a 25 basis point rate cut in November, though expectations for further large cuts have receded.
The euro continues to weaken, hitting its lowest point since early August at $1.0885 ahead of the ECB meeting. The ECB is expected to deliver a 25 bps rate cut as inflationary pressures ease. This divergence in monetary policy between the Fed and ECB has weighed heavily on the euro, pushing it down against the dollar.
Similarly, the British pound has retreated, trading at $1.3079. Data from the U.K. labor market shows wage growth slowing to its lowest in two years, reducing pressure on the Bank of England (BoE) to maintain higher rates. The market now anticipates a BoE rate cut in the coming months, contributing to the pound's recent 2% decline against the dollar.
The Japanese yen has remained under pressure, trading near 149.29 against the dollar, just off a multi-month low of 149.98. Japan's dovish stance, reinforced by Bank of Japan (BoJ) Governor Kazuo Ueda and new Prime Minister Shigeru Ishiba, has caused doubts about any immediate rate hikes, leading to the yen's depreciation. The BoJ is expected to hold off further tightening this year, adding to the yen's fragility.