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Dollar Steady Near 3-Month High versus Yen, Aussie Skids

10/25/2017, 4:13:27 PMMarket Analysis
Dollar Steady Near 3-Month High versus Yen, Aussie Skids

The dollar was steady near three-month highs against the yen on Wednesday, boosted by speculation over the course of U.S. monetary and fiscal policy, while weak domestic inflation data sent the Australian dollar sharply lower.

USD/JPY was trading at 113.88 by 03:28 AM ET (07:28 AM GMT), not far from Monday’s highs of 114.09, which was the strongest level since July 11.

The dollar has been bolstered in recent sessions by hopes for tax reforms after the Senate approved a budget measure that will allow Republicans to pursue tax cuts without Democratic support.

Demand for the dollar has also been underpinned by speculation over an accelerated pace of interest rate increases if current Federal Reserve Chair Janet Yellen, whose term expires in February, is replaced by a more hawkish candidate.

President Donald Trump has said he is weighing five candidates to lead the Fed, including Yellen, who is perceived by investors as the least hawkish.

Speculation over a more hawkish Fed leader helped offset concerns over a feud in the Republican Party which could hamper Trump’s efforts to push through his legislative agenda.

The euro was steady against the dollar, with EUR/USD at 1.1767 ahead of Thursday’s European Central Bank meeting, where President Mario Draghi was expected to update markets about the future of the banks stimulus program.

The Australian dollar fell to four-and-a-half month lows overnight, with AUD/USD down 0.75% to 0.7717 as surprisingly soft domestic inflation data diminished expectations for a rate hike by the country’s central bank in the coming months.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was little changed at 93.81.