Dollar hits 10-week high against yen as Fed bets ebb ahead of CPI

By Kevin Buckland and Harry Robertson

TOKYO/LONDON (Reuters) -The U.S. dollar rose to a 10-week peak against the yen on Thursday as markets grew more confident about a patient approach by the Federal Reserve to further monetary easing, even as a key inflation report loomed later in the day.

The dollar index , which measures the currency against six key rivals including the yen, stuck close to an almost two-month top touched overnight, as traders further pared bets for U.S. rate cuts this year after last week's unexpectedly strong payrolls data.

The U.S. currency touched 149.54 yen for the first time since Aug. 2., although it was last down 0.1% at 149.11 yen. Meanwhile, the euro languished near its lowest since Aug. 13 against the dollar, flat on the day at $1.0935.

September's consumer price index (CPI), due at 1230 GMT, is likely to show core U.S. inflation holding steady at a 3.2% year-on-year clip, economists polled by Reuters said.

Minutes from the Fed's latest meeting, released overnight, confirmed the central bank's focus on keeping the labour market healthy.

"The argument for a more gradualist approach is now definitely the central position," said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.

"The market's momentum is towards reconsidering how much the Fed will really cut in the coming months. I think that momentum can build, because the U.S. data flow has been relatively good recently."

San Francisco Fed President Mary Daly said late on Wednesday that she was less concerned now about resurgent inflation than about hurting the labour market.

Traders lay 85% odds on the Fed cutting rates by 25 basis points at its next policy decision on Nov. 7, and a 15% probability of no change, the CME Group's (NASDAQ:CME ) FedWatch Tool showed.

A week earlier, markets saw a cut as certain, with 35% odds on another half-point reduction.

The dollar index was little changed at 102.93 by 0830 GMT, around the highest since the middle of August.

"There is a limit to how much more pricing for interest rate cuts can be removed without strong guidance by senior Federal Open Market Committee (FOMC) officials," said Joseph Capurso, head of international and sustainable economics at Commonwealth Bank of Australia (OTC:CMWAY ), who forecasts 50 basis points of cuts over the year's two remaining Fed meetings.

The risk-sensitive Australian dollar was up 0.11% to $0.6726. It earlier rose more than 0.3% on the back of an equity rally in top trading partner China as the East Asian nation's central bank launched a swap programme aimed at supporting the stock market.

China's finance ministry is due to hold a highly anticipated news conference on fiscal policy on Saturday.

The Aussie dropped to its weakest since Sept. 16 at $0.6708 on Wednesday, after a stimulus announcement by China's state planner fell flat.



RBC's Tan said he expects China to announce fiscal stimulus on Saturday that should be "enough to create a floor for China’s economy".

He said the stimulus is likely to support China's yuan , which has fallen in recent days, and boost other Asian currencies such as the Singapore dollar and the Indonesian rupiah.

Source: Investing.com