By Kevin Buckland and Joice Alves
TOKYO/LONDON (Reuters) -The dollar was little changed on Thursday as traders added to bets for a Federal Reserve interest rate reduction next month after New York Fed chief John Williams signalled a cut was possible.
The U.S. currency has been under renewed pressure from President Donald Trump’s ramped-up campaign to exert more influence over monetary policy decisions, as he attempts to fire Fed Governor Lisa Cook and replace her with a loyalist.
The dollar flattened against the euro even after France’s prime minister on Monday unexpectedly called a confidence vote for next month, which is likely to result in the fall of his minority government.
The Fed’s Williams said in an interview with CNBC on Wednesday that it is likely interest rates can fall at some point, but policymakers will need to see what upcoming data indicate about the economy to decide if it’s appropriate to make a cut at the September 16-17 meeting.
Key among data releases before that meeting are the PCE price index on Friday – the Fed’s preferred inflation measure – and the monthly payrolls report a week later.
Traders currently lay around 89% odds of a quarter-point rate cut next month, and have priced in a cumulative 55 basis points of easing by year-end, according to LSEG data.
That helped send two-year Treasury yields, which are sensitive to policy expectations, sliding to the lowest level since May 1, adding to pressure on the dollar.
President Trump’s push to place hand-picked, dovish-leaning candidates into the central bank’s decision-making committee also pulled short-term yields lower, even though his attack on Governor Cook could spark a protracted legal battle after she sued to keep her job.
“Short-dated U.S. yields remain near their recent lows, and most would conclude that this week’s (attempt to remove) removal of the Fed’s Lisa Cook by President Trump is dollar-negative,” said Chris Turner, global head of markets at ING.
The dollar index, which gauges the currency against six major peers, edged 0.1% higher at 98.225, following two days of declines.
The euro was little changed, down 0.07% at $1.1630.
Against the yen, the dollar slipped 0.03% to 147.34 yen.
Japan’s chief trade negotiator Ryosei Akazawa canceled a trip to Washington at the last minute on Thursday, delaying an announcement of the details of Japan’s $550 billion investment pledge in the United States as part of a tariff deal.
A government spokesperson said the decision was taken after talks with the U.S. side revealed some points that need further discussion “at the administrative level”.
The dollar slipped to its lowest level against China’s offshore yuan since November, last down 0.2% to 7.1360 yuan in offshore trading.
(Reporting by Kevin Buckland and Joice Alves; Editing by Sharon Singleton)
