Dollar hangs near two-month high, yen nudges 150/$

By Ankur Banerjee

SINGAPORE (Reuters) - The U.S. dollar was perched at an over two-month high against major currencies on Tuesday, spurred by wagers the Federal Reserve will proceed with modest rate cuts in the near term, pinning the yen closer to the key 150 per dollar level.

The euro also remained on the back foot, trading near the lowest level since Aug. 8 touched on Monday ahead of the European Central Bank policy meeting on Thursday, where the central bank looks set to deliver another interest rate cut.

A string of U.S. data has shown the economy to be resilient and slowing only modestly, while inflation in September rose slightly more than expected, leading traders to trim bets on large rate cuts from the Fed.

The U.S. central bank kicked off its easing cycle with an aggressive 50 basis points at its last policy meeting in September but market expectations have shifted to a slower pace of cuts, boosting the dollar.

Traders are now ascribing 89% chance of a 25 bps cut in November, with 45 bps of easing overall priced in for the year.

The dollar index, which measures the U.S. currency against six rivals, was at 103.27, just shy of 103.36, the highest level since Aug. 8 it touched on Monday. The index is up 2.5% and on course to snap its three-month losing streak.

The dollar got a lift after Fed Governor Christopher Waller on Monday called for "more caution" on interest rate cuts ahead, citing recent economic data.

"Whatever happens in the near term, my baseline still calls for reducing the policy rate gradually over the next year," Waller said.

Recent hurricanes and a strike at Boeing could make job market readings difficult, stripping perhaps more than 100,000 from monthly job gains in October, Waller estimated. The next non-farm payrolls (NFP) data is due in early November.

"Most knew that recent disruptions would result in the NFP print being a messy affair, but Waller's comment goes some way in quantifying the sort of disruption we can expect," said Chris Weston, head of research at broker Pepperstone.

"Essentially, with the next NFP so distorted, the market won't have the same level of control in pricing risk into the November FOMC meeting." The Fed's next meeting is on Nov 6-7.

The dollar's rise has pushed the yen lower, especially after a dovish shift in rhetoric from Bank of Japan Governor Kazuo Ueda and surprising opposition to further rate hikes by new Prime Minister Shigeru Ishiba.

That has cast doubts over when Japan's central bank will next tighten policy, with a very slim majority of economists in a Reuters poll expecting BOJ to forgo raising rates again this year.

The yen last fetched 149.72 per dollar, having slid to as low as 149.98 on Monday, its weakest level since Aug. 1. The yen is down 4% this month and was trading below 140 per dollar just a month earlier.

Meanwhile, the Australian dollar fell 0.19% to $0.67135, while the New Zealand dollar eased 0.22% to $0.60835. The euro was 0.15% lower at $1.0892.

China's yuan, both onshore and offshore, weakened to a one-month low against the dollar on Tuesday. [CNY/]

Sterling last bought $1.30525 ahead of UK wage data that could offer clues to Bank of England's (BoE) next move at its policy meeting next month.

Expectations that sticky inflation would keep the BoE on a gradual rate cut path relative to its peers - the Fed and the ECB - had underpinned the pound's outperformance this year but shifting bets have pushed it lower in recent weeks, with the pound down over 2% for the month.

(Reporting by Ankur Banerjee in Singapore; Editing by Jamie Freed and Lincoln Feast.)