By Ankur Banerjee
SINGAPORE (Reuters) -The U.S. dollar was steady on Thursday, holding its overnight gains, as traders weighed the prospect of a measured Fed easing cycle in the wake of a cautious tone from policymakers while awaiting data that may outline the impact of tariffs.
Traders have priced in 43 basis points of easing in the remaining two policy meetings this year although comments from officials including Federal Reserve Chair Jerome Powell indicate that a lot will depend on the upcoming inflation and labour data.
The lack of clarity and consensus on future easing has meant traders are no longer fully pricing in a cut next month. The U.S. dollar has ground higher since the Fed lowered interest rates last week, as expected.
The euro last bought $1.17425, steady in early Asian hours after dropping 0.6% in the previous session. Sterling was little changed at $1.3451 after also slipping 0.6% on Wednesday.
The dollar index, which measures the U.S. currency against six other units, was at 97.813, hovering near a three-week high. The index is on the cusp of eking out a gain for the month.
San Francisco Fed President Mary Daly echoed other central bankers by suggesting while further rate cuts are needed, their timing remains unclear.
“Will they come right now, this year or going forward?” Daly said.
“It’s hard to say, but what’s really important is that making those policy adjustments will likely be required to balance both of our goals,” she said, referring to the Fed’s dual mandate.
The spotlight will be on U.S. economic data, including the Fed’s preferred gauge of inflation, the Personal Consumption Expenditures report on Friday and the final estimate for second quarter GDP on Thursday, while the prospect of a government shutdown looms large.
Investors are keenly looking for clues on the impact of the sweeping tariffs unleashed by U.S. President Donald Trump that has upended the global trade order. Data so far has not fully unveiled the impact of tariffs on prices and economy.
“Tariff-led price pressures remain a wild card,” said Laura Cooper, global investment strategist at Nuveen. “While markets are leaning toward consecutive cuts by year-end, sticky inflation makes that path far from assured.”
Cooper anticipates PCE price inflation peaking near 3.2% later this year, keeping inflation above target for longer. “That alongside the FOMC’s data-dependent stance still argues for patience.”
The yen strengthened a bit in early trading after minutes of the Bank of Japan’s July policy meeting showed some board members called for resuming interest rate hikes in the future.
In its September meeting, the BOJ held rates steady but faced two dissents, indicating that rate hikes were not far off.
Markets see a roughly 50% chance of a rate hike at the BOJ’s next policy meeting on October 29-30, when the board will also release fresh quarterly growth and inflation forecasts.
The yen was last at 148.62 per U.S. dollar, inching away from the three-week low it touched on Wednesday, with investors also keeping an eye on who becomes Japan’s next prime minister after Shigeru Ishiba’s decision earlier this month to step down.
The New Zealand dollar was 0.1% higher at $0.5813 a day after Swedish central banker Anna Breman was named as the next central bank governor, becoming the first woman in the role. The Australian dollar was last bought $0.65905.
(Reporting by Ankur Banerjee in Singapore; Editing by Sam Holmes)
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