By Kevin Buckland
In a stark contrast of tones, the dollar plummeted to a three-week low against the yen on Monday as Federal Reserve Chair Jerome Powell embraced a dovish stance, while Bank of Japan chief Kazuo Ueda remained hawkish. This shift caused the U.S. currency to near its lowest level in 13 months against the euro and approach levels not seen since March 2022 versus sterling. Bank of England head Andrew Bailey's cautious comments on inflation further indicated a less aggressive approach to interest rate cuts compared to the Fed.
The dollar dropped as much as 0.66% to 143.45 yen, its lowest since Aug. 5, before settling down 0.31% at 0517 GMT. Meanwhile, sterling dipped slightly to $1.31995 after hitting $1.32295 on Friday for the first time in 17 months.
Market experts noted Powell's use of stronger language in his speech at the annual Jackson Hole symposium, without the usual gradual rate-cut caveats, signaling the potential for larger rate reductions. This sentiment excited markets and contributed to the dollar's decline against major currencies.
On the other hand, Ueda maintained the BOJ's stance on adjusting easing measures, downplaying the impact of the July rate hike. Traders are anticipating the Fed to kick off its loosening campaign on Sept. 18, with increasing odds of a 50-basis point reduction.
While the BoE's Bailey echoed a less dovish stance than the Fed, the ECB is considering another rate cut on Sept. 12. The euro remained stable at $1.1184, near its high from last year, as the dollar index lingered near a 13-month low.
Additionally, the Chinese yuan and Australian dollar showed mixed movements, while bitcoin saw a slight increase.
Overall, the contrasting monetary policies of major central banks are likely to impact currency markets in the coming weeks. Investors should pay close attention to these developments as they could affect investment decisions and financial outcomes.