Dollar Surges as Fed Rate Cut Bets Fade Away—Yen Tumbles to Nine-Month Low

The U.S. dollar extended its dominance in early Asian trading on Tuesday, driving the Japanese yen to its weakest position in over nine months at 155.29 per dollar. This sharp reversal reflects a dramatic shift in market expectations surrounding Federal Reserve monetary policy heading into December.

Market Sentiment Pivots on Policy Uncertainty

The dramatic fade in Fed rate cut expectations has become the primary driver of currency market movements. Fed funds futures now price in only a 43% probability of a 25-basis-point rate reduction, a substantial pullback from the 62% odds recorded just seven days prior. This recalibration suggests investors are increasingly bracing for the central bank to maintain its current policy stance when officials meet on December 10.

Analysts from ING warned that even if the Fed pauses rate actions next month, “it is likely to be a temporary pause,” emphasizing that incoming employment data will prove decisive for future policy trajectories. Thursday’s U.S. payroll report is expected to provide critical clarity on the labor market’s true health.

Japanese Policymakers Sound Alarm Over Rapid Currency Decline

Japan’s Finance Minister Satsuki Katayama voiced serious concerns during her press briefing, cautioning against “one-sided, rapid moves” in foreign exchange markets and their destabilizing effects on the broader economy. The timing of her remarks coincides with a scheduled meeting between Prime Minister Sanae Takaichi and Bank of Japan Governor Kazuo Ueda, signaling heightened official scrutiny of ongoing currency movements.

Labor Market Weakness Undermines Rate Cut Case

Federal Reserve officials amplified concerns about employment momentum on Monday, with Vice Chair Philip Jefferson describing labor conditions as “sluggish.” Growing evidence of hiring hesitancy among corporations—coupled with increased adoption of artificial intelligence in business processes—has dimmed the case for lower borrowing costs in the near term.

This deteriorating employment backdrop has already rippled through equities markets, with all three major U.S. stock indexes posting declines. Treasury yields revealed mixed signals: the two-year note yielded 3.6039% (down 0.2 basis points), while the 10-year climbed to 4.1366% (up 0.6 basis points).

Global Currency Moves Reflect Broader Risk-Off Sentiment

Beyond the yen’s retreat, other currency pairs have shifted modestly. The euro held steady near $1.1594, the British pound shed 0.1% to reach $1.3149 for its third consecutive session of losses, the Australian dollar touched $0.6493, and the New Zealand dollar remained anchored at $0.56535. These movements collectively underscore a cautious market tone as investors await clarity on U.S. employment dynamics.