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Investing.com - The U.S. dollar edged marginally lower Monday, handing back some of the prior week’s gains as comments from influential Fed policymaker John Williams prompted traders to take on further bets that the Federal Reserve will ease interest rates next month.
At 04:00 ET (09:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower to 100.077, having posted a gain of around 1% last week.
Dollar slips on raised Fed cut expectations
Optimism surrounding an interest rate cut by the Fed in December rose after John Williams of the New York Fed suggested on Friday that policy adjustment is possible in the near term.
This has resulted in the probability of a 25-basis-point rate cut in December jumping to around 69% from about 44% a week earlier, according to the CME FedWatch Tool.
That said, the minutes from the last Fed meeting suggested that a number of policymakers still cautioned that inflation remains too high, leaving the December outcome uncertain.
The dollar focus this week, a holiday-shortened week, will be on emerging U.S. data, with September retail sales released on Tuesday.
The release of the Federal Reserve’s Beige Book on Wednesday will also be of interest, as “any anecdotal evidence from the Fed’s 12 reporting districts that the slowdown in employment is broadening could put the notion of a Fed December rate cut back on the agenda," said analysts at ING, in a note.
Euro helped by Ukraine peace talks
In Europe, EUR/USD edged 0.2% higher to 1.1531, helped by signs of progress towards a peace deal between Ukraine and Russia.
The United States and Ukraine were set to continue work on Monday on a plan to end the war with Russia after agreeing to modify an earlier proposal that was widely seen as too favorable to Moscow.
The two sides said in a joint statement they had drafted a "refined peace framework" after talks in Geneva on Sunday, although they did not provide specifics.
The German Ifo business climate index fell to 88.1 in November, dropping from October’s 88.4, as the eurozone’s largest economic continued to show weakness.
“We are a little surprised to see EUR/USD still languishing not far from 1.1500 – but perhaps investors are more comfortable expressing euro-positive views through EUR/CHF than EUR/USD. Still, we think events this week could firm up the floor in EUR/USD at 1.1500,” said ING.
GBP/USD edged lower to 1.3096, with sterling remaining under pressure ahead of Wednesday’s budget announcement, where finance minister Rachel Reeves seeks to tread a path between spending to support faltering growth, while showing the market Britain can meet its fiscal targets.
“Our baseline going into Wednesday’s budget is that sterling’s upside is probably quite limited on a credible/tight budget and that there is some sterling downside on the view that the 2026 Bank of England easing cycle is under-priced,” said ING.
Yen on intervention watch
In Asia, USD/JPY gained 0.2% to 156.71, with the Japanese yen remaining under pressure after hitting multi-month lows last week, with the pair jumping over 1%, amid expectations that the Bank of Japan may maintain or even ease policy while the newly installed administration led by Sanae Takaichi pursues expansionary fiscal-monetary measures.
Yen’s weakness was tempered somewhat after officials in Tokyo escalated warnings that currency intervention remains an option if the decline becomes disorderly, while the Japanese holiday has limited activity.
This holiday-impacted trading week could open a possible window for authorities to step in.
Past interventions have taken place during periods of low liquidity, allowing the authorities to move prices more sharply.
USD/CNY traded largely unchanged at 7.1064, while AUD/USD gained 0.1% to 0.6465, helped by the general boost in global risk appetite.