Dollar pauses for breath with Fed speakers in focus

By Gregor Stuart Hunter

SINGAPORE (Reuters) -The U.S. dollar faced continued pressure in early trading in Asia on Tuesday as traders parsed comments by members of the Federal Reserve for clues on the path of interest rates.

The greenback edged lower, extending declines after snapping a three-day winning streak on Monday, with the U.S. dollar index last at 97.28.

“It’s a slightly hawkish tone from Fed speakers that has given people a little bit of pause for thought,” said Tony Sycamore, market analyst at IG in Sydney.

Investors are assessing the impact of U.S. President Donald Trump‘s economic policies on the health of the global economy and the implications for Federal Reserve policy ahead of the release of core personal consumption expenditures (PCE) data later this week.

Congressional funding talks this week to avert a government shutdown on September 30 have added to market jitters.

Traders have reined in bets of interest rate cuts at the Federal Open Market Committee’s October meeting, with Fed funds futures implying a 10.2% chance of a hold, compared to a probability of 8.1% on Friday, according to the CME Group’s FedWatch tool.

Against the yen, the dollar was flat at 147.74 yen, remaining firmly in the trading range it has sat in since the start of August. Japanese markets were closed for a public holiday on Tuesday.

The kiwi weakened 0.1% to $0.5867 after the New Zealand government said it would make an announcement related to the central bank on Wednesday at 1 p.m. (0100 GMT), as markets await the appointment of a new governor.

Gold hit a fresh record high of $3,749.03 per ounce.

FED SPEAKERS URGE CAUTION

The yield on benchmark 10-year Treasury notes extended its climb to 4.1467% after reaching a three-week high at the U.S. close of 4.145% on Monday. The two-year yield, which rises with traders’ expectations of higher Fed funds rates, edged up to 3.6051% compared with a U.S. close of 3.601%.

“Yields on Treasuries ticked slightly higher amid several Fed officials suggesting a more cautious approach to the cutting cycle and emphasising that there remain upside inflation risks,” Westpac analysts wrote in a research note. “Investors pulled back the likelihood of a U.S. Fed rate cut in October following the comments.”

St. Louis Fed President Alberto Musalem, who votes on Fed policy this year, said the central bank “should tread cautiously”, as its policy rate accounting for inflation might already be close to neutral.

Atlanta Fed President Raphael Bostic, in a Wall Street Journal interview, said the focus needed to remain on ensuring inflation returns to the Fed’s 2% target from a current level about a percentage point higher and that further rates cuts this year were not needed.

Cleveland Fed President Beth Hammack also said the Fed “should be very cautious in removing monetary policy restriction”. Neither Bostic nor Hammack votes on Fed policy this year.

Meanwhile, new Federal Reserve Governor Stephen Miran said on Monday that the Fed was misreading how tight it has set monetary policy and would put the job market at risk without aggressive rate cuts.

Fed Chair Jerome Powell will speak on the economic outlook later on Tuesday.

ARGENTINA’S PESO STRENGTHENS

The euro stood at $1.1798, little changed so far in Asia, paring gains after its best daily performance in a week from Monday.

The dollar sank 4.5% against Argentina’s peso after U.S. Treasury Secretary Scott Bessent said on Monday that “all options” were on the table for stabilising Argentina, including swap lines and direct currency purchases.

He added no steps would be taken until after he and Trump meet with Argentine President Javier Milei in New York on the sidelines of the United Nations General Assembly on Tuesday.

The Australian dollar fetched $0.6599, weakening 0.1% in early trade, after hitting a two-week low on Monday.

The offshore yuan traded unchanged at 7.1158 yuan per dollar.

Sterling fluctuated between gains and losses, last trading flat at $1.35125.

(Reporting by Gregor Stuart Hunter; Editing by Jamie Freed)