Published by Global Banking and Finance Review
Posted on February 18, 2025
By Ankur Banerjee
SINGAPORE (Reuters) - The dollar wobbled near two-month lows on Tuesday as traders weighed tariff worries and the path to U.S. rate cuts, while the Australian dollar managed to stay close to its highest level in two months even as markets bet on an imminent rate cut.
The yen held on to its recent gains as strong growth data bolstered odds of the Bank of Japan raising interest rates again this year, with July seen as a live meeting.
Investor focus this week will be on Wednesday's release of minutes of the Federal Reserve's meeting in January to gauge how policymakers have sought to weigh the risk of a broader tariff war in the wake of President Donald Trump's trade policies.
Data last week showed U.S. consumer prices increased by the most in nearly 1-1/2 years in January, reinforcing the Fed's message that it was in no rush to resume cutting rates amid growing uncertainty over the economy.
"Trade policy uncertainty is at a record high ...and given that the labour market is solid, there is no compelling case to cut rates imminently," ANZ strategists said in a note.
"An extended pause during the first half of this year looks justified and will give the Fed time to assess the impact of trade measures on inflation."
ANZ now expects the rate cuts to restart in the second half of 2025, with a further 75 bps of easing anticipated. Markets though are not as optimistic, with traders pricing in 40 bps of cuts for this year.
In Asia, the yen was steady at 151.61 per dollar in early trading. Japan's solid October-December GDP data on Monday, coupled with recent strong inflation, have helped lift the yen. It is up nearly 4% against the dollar so far in 2025.
The dollar index, which measures the U.S. currency against six other major rivals, was 0.1% higher at 106.83 but still near the two-month low of 106.56 it touched on Friday.
The euro was steady on the day at $1.04735, while sterling last bought $1.2608 as traders braced for talks in Saudi Arabia later on Tuesday aimed at ending the Ukraine war.
The Australian dollar eased 0.17% to $0.63459 on the day, but still close to the two-month high of $0.6374 it touched on Monday ahead of the policy decision from the Reserve Bank of Australia, with markets pricing in a 25 bp rate cut. [AUD/]
Kristina Clifton, an economist at Commonwealth Bank of Australia, is not expecting significant moves in the Aussie if the RBA cuts as expected though it could rise sharply if the central bank keeps rates unchanged.
"How far AUD jumps will depend on the RBA’s post‑meeting statement and press conference. If the statement suggests a cut will be delivered soon, the lift in AUD may be smaller. But if the statement is non‑committal about a cut, AUD could lift by more than 1%."
The New Zealand dollar fell 0.3% to $0.57195 ahead of the Reserve Bank of New Zealand meeting on Wednesday, where the central bank is widely expected to cut rates by 50 bps.
(Reporting by Ankur Banerjee in Singapore; Editing by Shri Navaratnam)
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