Bitcoin was the notable mover as it reached for one-month highs on Monday, sustaining its rally after the Federal Reserve's super-sized rate cut last week
Bitcoin hit one-month highs and the dollar firmed against the yen on Monday in a quiet Asian session, as traders awaited further cues on U.S. interest rates and their impact on global markets and currencies.
Bitcoin rose 0.8% to $63,243 and was not far from the one-month high of $63,431 it hit on Sept. 19.
The dollar was around 144.08 yen at the start of the Asian session, having hit a two-week high of 144.50 last week. The greenback hit a two-decade low of 139.69 yen on Sept. 12.
The Bank of Japan left interest rates unchanged last week and indicated it was in no hurry to hike them again, putting a pause to the yen’s sharp gains this month. The currency is up 1.4% in September.
The main driver of trade was expectations around further Fed rate cuts and the gains those have spurred in equities, commodity currencies and other risk assets.
The U.S. dollar index, which measures the greenback against major currencies, gained slightly to 100.8, continuing to stay above the one-year low it hit last week.
The Fed's rate cut "appears to have calmed market fears of a U.S. recession", Goldman Sachs said in a note. "Our G10 FX team expect a slight rebound for the U.S. dollar over the next 3 months, before easing again on a 6- and 12-month view."
Fed futures traders have priced in 75 bps in rate cuts by the end of this year, and nearly 200 bps in cuts by December 2025 that will take the Fed's policy rate by the end of 2025 to 2.75%, according to CME FedWatch.
The U.S. Treasury yield curve has been steepening after the Fed's rate cut, and investors added to bets favoring a second outsized rate cut after Fed Governor Christopher Waller said on Friday he was worried inflation may soon be running substantially below the central bank's 2% target.
Meanwhile, the majority of economists polled by Reuters anticipate two more 25 bps rate cuts at the Fed's final two meetings this year.
In weekend news, U.S. House Republicans unveiled a three-month stopgap bill to avert a government shutdown.
For the yen, an upcoming ruling party vote later this week to choose a new prime minister makes the BOJ's job challenging in the coming months. A snap election is seen as likely in late October.
Liberal Democratic Party frontrunners to replace outgoing Prime Minister Fumio Kishida have presented diverse views on monetary policy.
Sanae Takaichi - who would become the nation's first female premier - is a reflationist who has accused the Bank of Japan of raising rates too soon. Shigeru Ishiba has said the central bank is "on the right policy track", while Shinjiro Koizumi, son of charismatic ex-premier Junichiro Koizumi, has so far only said he will respect the BOJ's independence.
The selection presents two-way risks for yen, Barclays analysts wrote on the weekend. "The main risk here is if Abenomics advocate Takaichi wins, this could pose headwinds to the BOJ's policy-normalization plan and raise concerns about fiscal discipline," they said.
That could lead to a steeper Japanese bond curve and downside pressure on the yen as investors pare expectations for another rate rise, they said.
The Bank of England kept rates unchanged on Thursday, with its governor saying the central bank had to be "careful not to cut too fast or by too much."
The pound was down 0.1% at $1.3310, staying near highs it hit on Friday after the release of strong British retail sales data.
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