FOREX-Dollar unfazed even as US rate cut comes back into view

By Ankur Banerjee

SINGAPORE, Nov 25 (Reuters) - The U.S. dollar was steady on Tuesday as investors deliberated over the chances of a Federal Reserve rate reduction next month following dovish comments from policymakers, as the Japanese yen remained on intervention watch.

On Monday, Fed Governor Christopher Waller said the job market was weak enough to warrant another quarter-point rate cut in December, though action beyond that depended on a flood of data that was delayed by the federal government shutdown.

Waller's comments echoed those of New York Fed President John Williams on Friday. Traders are now pricing in an 81% chance of a cut next month, up from 42% a week earlier, CME FedWatch showed.

"There is an intense focus on the stance of each respective Fed voter and their views on a December rate cut," said Chris Weston, head of research at Pepperstone.

"This makes sense given that the market (and the Fed) have not received the data that would typically influence their decision on policy ... perhaps the biggest unknown is the view of (Fed Chair Jerome) Powell himself, but on balance one could assume he would vote for a December rate cut."

Thus far, the sudden shift in rate-cut wagers has had a limited impact on the dollar. The euro EUR= last bought $1.1522 after gaining slightly overnight, while sterling GBP= was at $1.3097. The U.S. dollar index =USD, a measure of the greenback against its major counterparts, was little changed at 100.23.

Fed officials remained divided on what might come next as the central bank still lacks a full suite of data.

"Holding rates steady in December at a time when the labour market is fragile and both short- and long-term U.S. inflation expectations are falling would be a disconnect that likely wouldn’t sit well with the market," Pepperstone's Weston said.

Investor sentiment was also lifted by improved signs in the U.S.-China relationship. President Donald Trump said relations with China were "extremely strong" on Monday following a call with Chinese President Xi Jinping.

The call, not previously disclosed by either country, came weeks after the two leaders met in South Korea, where they agreed to a framework of a trade deal that has yet to be finalised.

YEN WATCH

Despite the greenback's slight weakness this week, the Japanese yen JPY= has been on the defensive, trading at 156.70 per dollar, not far from the 10-month low of 157.90 that it touched last week.

Traders have been waiting for signs of government intervention to support the Japanese currency, which has weakened by nearly 10 yen since the start of October after fiscal dove Sanae Takaichi took over as Japan's prime minister.

Verbal jawboning from government officials has failed to stem yen weakness. Market analysts believe an official intervention, similar to moves last year and in 2022, could be on the cards. Traders believe intervention looms somewhere between 158 and 162 yen per dollar, but they did not expect the move to be highly effective.

"We do not think that we are too far away from the levels that would warrant direct FX intervention, the 160 level versus the dollar could prove to be a line in the sand for Japanese authorities," said Matthew Ryan, head of market strategy at Ebury, a financial services firm.

The New Zealand dollar NZD= eased to $0.5602, having slid more than 2% this month ahead of an expected rate cut from the Reserve Bank of New Zealand on Wednesday. The Australian dollar AUD= was at $0.6454, down 0.12% on the day.

In cryptocurrencies, bitcoin BTC= remained under pressure and was last down 0.8% at $88,085.47. It is down nearly 20% this month.