Firm dollar keeps peers on back foot ahead of BOE, Fed decisions

TOKYO: The dollar hovered off a four-month high on Thursday as the market continued to digest Republican Donald Trump's win in the US presidential election, while investors eyed several central bank decisions that will be topped off by the Federal Reserve.

The Fed is expected to cut interest rates by 25 basis points later in the day, and the market focus will be on any clues that the US central bank could skip a cut in December.

Last week's October jobs report came in weaker than expected, raising questions over the degree of softness in the labour market, though this data was clouded by the impact of recent hurricanes and labour strikes.

The Fed's decision comes on the back of the US presidential election, with a victory by Trump fuelling questions about whether the bank may proceed to reduce rates at a slower and shallower pace.

While the former president's comeback to the White House received a "market-pumping" reaction, there were "mixed feelings when you dig a little deeper into the moves," said senior market analyst Matt Simpson at City Index.

US equities at record highs and a weaker yen appeared to be an "endorsement for Trump," but a stronger dollar and higher US Treasury yields indicated markets were pricing in a less dovish Fed going forward, he said.

Trump’s policies on restricting illegal immigration, enacting new tariffs, lowering taxes and deregulation may boost growth and inflation and crimp the Fed’s ability to cut rates.

A full sweep by Republicans would allow the party to make larger legislative changes and in turn likely provoke larger currency moves, although control of the House of Representatives remains in question.

Following the election, markets now see about a 70% chance the Fed will also cut rates next month, down from 77% on Tuesday, according to the CME Group’s Fed Watch Tool.

US Treasuries fell sharply on Wednesday, propelling yields to multi-month highs. The dollar index =USD, which measures the greenback against six major peers, edged down 0.05% to 105.06 after surging to its highest since July 3 at 105.44 in the previous session.

Anything less than a "dovish cut" from the Fed on Thursday could see traders trim back bets for a December cut and the dollar and yields rising higher, Simpson added.

The yen was up 0.22% at 154.30 per dollar JPY=EBS, after touching 154.7 on Wednesday, its lowest against the greenback since July 30.

Ahead of the Fed, the Bank of England is likely to cut interest rates the second time since 2020 but the big question for investors is whether it sends a signal about its subsequent moves after the government's inflation-raising budget.

The Riksbank is seen easing by 50 basis points, and the Norges Bank is set to stay on hold.

Elsewhere, the Aussie AUD=D3 was mostly flat at $0.6568, consolidating after falling to a three-month trough of $0.6513 on Wednesday.

The kiwi traded at $0.5944 NZD=D3, up 0.08%.