Dollar slips against Yen, nears 2-1/2-year low against Sterling after Fed's dovish pivot

Yen outpaces Dollar: The Yen surged to a three-week high against the Dollar on Monday, following a stark contrast in monetary policy between the Federal Reserve and the Bank of Japan. Federal Reserve Chair Jerome Powell's dovish pivot sharply differed from Bank of Japan Governor Kazuo Ueda's consistent hawkish stance.

The US Dollar hovered near its lowest level in 13 months against the Euro and edged closer to levels not seen since March 2022 against the British Pound. Bank of England Governor Andrew Bailey's remarks that it was "too early to declare victory" over inflation signalled a less aggressive approach to interest rate cuts compared to the Fed.

The Dollar dropped as much as 0.59 per cent to 143.56 Yen for the first time since August 5 during early trading on Monday before settling down 0.25 per cent.

The British Pound remained steady at $1.3215, after reaching $1.32295 on Friday, its highest level in 17 months.

Powell’s stronger tone surprises

While Fed officials had been increasingly dovish leading up to the Fed's annual Jackson Hole symposium, Powell "used stronger language" in his keynote speech on Friday, said Tapas Strickland, head of market economics at National Australia Bank.

"Notably, there was an absence of qualifiers like 'gradual/gradualism,' which likely caught the market's attention," Strickland added.

In Asia, BOJ's Ueda maintained his hawkish tone during parliamentary testimony on Friday, sticking to the narrative that the BOJ may need to adjust its degree of monetary easing, central bank jargon for a potential further rate hike. He also downplayed the impact of the July rate hike on market turbulence, Strickland added.

Many market participants expected Ueda to strike a less hawkish note during the special parliamentary session, which was convened amid criticism that last month's surprise rate hike had triggered a sharp unwinding of bearish yen bets and a significant sell-off of Japanese stocks.

The Dollar index, which measures the greenback against a basket of six major currencies, including the Euro, Sterling, and Yen, lingered at 100.64, just shy of the 13-month low of 100.60 reached last week.

The Euro remained steady at $1.1190, close to Friday's high of $1.1201, a level last seen in July of last year. This was despite reports suggesting that European Central Bank policymakers are inclined towards another rate cut on September 12.

Traders bet on easing

Traders widely expect the Fed to begin its easing cycle on September 18, with a 36.5 per cent probability of a larger 50-basis point rate cut, according to CME Group's FedWatch Tool. This is up from 25 per cent just a week ago.

Elsewhere, the Australian Dollar dipped 0.1 per cent to $0.6790, remaining near Friday's peak of $0.67985, the highest level since July 11.

The Chinese Yuan in offshore trading ticked up slightly to 7.1130 per Dollar, marking its strongest level since August 5.

Meanwhile, leading cryptocurrency Bitcoin gained 0.9 per cent, reaching $64,271.60.