Dollar slips lower on dovish Fed speak; key data in spotlight

Investing.com - The U.S. dollar slipped lower Tuesday, weighed by dovish Fed speak ahead of the release of key economic data that could influence the Federal Reserve’ final policy meeting of the year.

At 04:15 ET (09:15 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower to 99.410, resuming declines after snapping a four-day losing streak on Monday. 

Dollar slips lower

The U.S. currency has retreated slightly after Federal Reserve Governor Christopher Waller spoke about the risks to the country’s jobs market, calling for another quarter-point rate cut at the upcoming policy meeting on December 9-10.

"Four to six weeks ago, we were still in this kind of no-hire, no-fire mode," Waller said in remarks to the Society of Professional Economists in London. Now, when he speaks to corporate executives, "they’re starting to talk about layoffs," he said. "They’re starting to plan for them."

"It could be AI-related. It could be a lot of other things ... It’s not just going to be ’no hire,  no fire.’ At some point this is going to start happening," Waller said.

That said, other Fed officials have signalled reluctance to ease further, leaving investors unsure of the central bank’s next move.

The ending of the federal government shutdown means that this week will see the release of numerous data points, highlighted by the closely-watched September nonfarm payrolls report on Thursday.

“Our base case remains that risks are tilted to the downside for the dollar once the U.S. data cycle kicks in, and we expect a December Fed cut to become the market’s base case again,” said analysts at ING, in a note.

Markets are pricing in an approximate 40% probability of a 25-basis-point cut at the U.S. central bank’s next meeting, down from around 60% chance a week ago.

Euro still has upside - ING

In Europe, EUR/USD edged marginally higher to 1.1593, after snapping a three-day losing streak overnight.

“In our view, upside risks for EUR/USD persist,” said ING. “The pair has recently traded on the cheap side relative to its short-term fair value, but since French political risk faded, it has struggled to maintain an undervaluation greater than 1% for consecutive days.” 

“Our year-end target remains 1.180. While the path higher may not resemble the one-way bullish traffic seen earlier this year, positive December seasonality could help smooth the move,” ING added.

GBP/USD traded 0.1% lower to 1.3152, with sterling under pressure ahead of Finance Minister Rachel Reeves’s upcoming budget.

Reeves is expected to need to raise tens of billions of pounds to stay on track to meet her fiscal targets on Nov. 26.

Yen gains slightly 

In Asia, USD/JPY slipped 0.2% lower to 154.96, with the Japanese yen gaining after earlier hitting near nine-month lows earlier in the session. 

Long-term Japanese government bond yields climbed to multi-decade highs, with the 20-year yield reaching record highs.

Investors have grown increasingly concerned that new fiscal measures under Prime Minister Sanae Takaichi’s administration could add to Japan’s already heavy debt load.

Takaichi is reportedly preparing to unveil her first economic package as early as this week. A Reuters report stated that Goushi Kataoka, a private-sector member of a key government panel, said Japan needs a stimulus package of about $149 billion to bolster the economy.

USD/CNY traded 0.1% higher to 7.1117, while AUD/USD traded largely unchanged at 0.6493.