FOREX-Dollar rises against euro amid Fed rate cut speculation

(Updated in New York afternoon time)

Fed officials cautious on further easing due to inflation concerns

US data return expected to increase market volatility

Pound falls after UK tax policy shift

By Karen Brettell

NEW YORK, Nov 14 (Reuters) - The dollar gained on the euro and was roughly flat against the yen on Friday as stocks recovered from a sharp selloff and traders weighed whether the Federal Reserve is likely to cut rates in December.

A flood of data that was delayed during the federal government shutdown is pending release starting next week. Risk sentiment has been dented by concerns about lofty stock valuations and Fed policy, but the S&P 500 and Nasdaq Composite stock indexes rebounded on Friday. The greenback had weakened on Thursday even as stocks dropped and Treasury yields climbed. More Fed officials have signalled caution over further easing, citing worries about inflation. Fed funds futures are pricing in only a 41% chance of a 25-basis-point cut in December.

RETURN OF DATA SEEN BOOSTING VOLATILITY

Markets are “disjointed because of the lack of data and the people reacting to the Fed speakers,” said Lou Brien, strategist at DRW Trading in Chicago. The return of U.S. data is likely to increase market volatility, which has ebbed in recent weeks in its absence. The Commerce Department’s Bureau of Economic Analysis said on Friday it was working to update its schedule of economic data releases affected by the recently ended government shutdown.

Bank of America foreign exchange strategists Adarsh Sinha and Claudio Piron note that volatility has also declined as interest rate differential volatility reached fresh lows, which was driven by some central banks, including the European Central Bank, approaching the end of their easing cycles.

Now, “we expect rate differential (and therefore FX) volatility to rise as US data releases resume, not to mention the considerable uncertainty around the rate paths of the (Bank of England) and (Bank of Japan),” they said.

The dollar index (=USD) , which measures the greenback against a basket of currencies including the yen and the euro, rose 0.07% to 99.31, with the euro (EUR=) down 0.12% at $1.1617.

Against the Japanese yen (JPY=) , the dollar weakened 0.02% to 154.52. The pound tumbled against both the dollar and the euro after media reports, including from Reuters, that British Prime Minister Keir Starmer and Finance Minister Rachel Reeves have abandoned plans to raise income tax rates, marking a sharp shift just weeks ahead of the November 26 budget.

The British currency was last down 0.24% at $1.3158. The euro hit its highest rate to the pound since April 2023. (GBP=) (EURGBP=)

Against the Swiss franc (CHF=) , the dollar strengthened 0.15% to 0.794. It earlier weakened to a one-month low of 0.7876 as traders rushed into the safe haven Swiss currency. The Swiss government also said on Friday that the United States will slash its tariffs on goods from Switzerland to 15% from a crippling 39% under a new framework trade agreement.

In cryptocurrencies, bitcoin (BTC=) fell 3.41% to $95,433, the lowest since May.