The dollar experienced a decline against the Japanese yen, as Bank of Japan Governor Kazuo Ueda offered his most robust signal yet that a potential interest rate hike in December might be on the table, thereby lending support to the struggling yen. Simultaneously, increasing anticipations for a December interest rate cut by the Federal Reserve applied downward pressure on the dollar. Ueda indicated on Monday that the BOJ would evaluate the advantages and disadvantages of increasing interest rates at its upcoming policy meeting in December, providing the clearest signal to date that a hike could occur this month. He later addressed a press conference, indicating that he would provide further details on the central bank’s future rate hike trajectory once rates reach 0.75%. He also noted that the policy decision in December would consider wage data and other relevant information. The dollar experienced a decline of nearly 1%, reaching 154.665 yen, before recovering slightly to trade down 0.7% at 155.09 yen.

“It does seem like the BOJ is indicating greater comfort with moving towards hikes,” stated Jayati Bharadwaj. “We anticipate a rate hike in December, which aligns with our forecast and is positively influencing the yen.” Market participants are factoring in an increasing likelihood of a December rate hike from the BOJ, as the yen’s decline to 10-month lows last month strengthens the argument for an interest rate increase. The yen strengthened against various currencies, resulting in a 0.4% decline for the euro and a 0.6% drop for the pound. In the broader market, the dollar exhibited a softer tone as investors prepared for a crucial month that may deliver the Fed’s final rate cut of the year and the affirmation of a dovish successor to Chair Jerome Powell.

Data released on Monday indicated that U.S. manufacturing experienced a contraction for the ninth consecutive month in November, as factories grappled with declining orders and rising input costs, continuing to feel the effects of import tariffs. The euro increased by 0.5%, reaching a peak not seen in over two weeks at $1.1652, before reducing its gains to a 0.1% rise. Sterling experienced a decline of 0.2%, trading at $1.3254, following its strongest performance in over three months during the previous week, driven by a relief rally in response to British Finance Minister Rachel Reeves’ budget announcements. Market participants are currently assessing an 88% probability that the Federal Reserve will implement a 25 basis point reduction during its upcoming meeting, as per indications. The situation becomes less defined regarding the developments that will occur post-December.

The current money markets indicate a minimal likelihood of an additional cut occurring before spring. Some analysts suggest that December could potentially result in a “hawkish cut”—a term used by traders to describe a reduction in rates that is accompanied by signals from policymakers indicating that another decrease in borrowing costs may not be on the horizon. The dollar is facing challenges as investors perceive a December cut as almost certain. The situation was further exacerbated by a report indicating that White House economic adviser Kevin Hassett might be the next Fed chair, leading to the dollar’s most significant weekly decline against a range of major currencies in four months last week. “With December FOMC now closer to fully pricing a 25bp cut, we think the market will increasingly focus on the pricing of subsequent meetings,” economists stated in a note. “The committee’s division is limiting more dovish pricing; however, given the substantial labor market data expected before the January meeting, we believe that Q1 pricing is insufficient.” The foreign exchange market resumed normal operations on Monday after experiencing an hours-long disruption at CME Group, the world’s largest exchange operator, last week. This outage significantly impacted transactions across various asset classes, including stocks, bonds, commodities, and currencies.