By Karen Brettell
NEW YORK (Reuters) -The dollar fell on Monday after Federal Reserve policy maker Michelle Bowman said the U.S. central bank should consider interest rate cuts soon, and on rising expectations that Iran’s response to the U.S. bombing of some nuclear sites in Iran will be limited.
Bowman, the Fed’s vice chair for supervision, said the time to cut interest rates may be fast approaching as she has grown more worried about risks to the job market and less concerned that tariffs will cause an inflation problem.
“Bowman is a well-known hawk, so any indication that she’s giving as to moving towards easing and lower interest rates is going to put the dollar on the back foot,” said Helen Given, director of trading at Monex USA in Washington.
Fed funds futures are now pricing in 58 basis points of cuts this year, indicating expectations that two 25 basis points in cuts are certain, with a rising chance of a third reduction.
Traders raised bets on more rate cuts after Fed Governor Christopher Waller said on Friday that the U.S. central bank should consider cutting rates at its next meeting, on July 29-30. They were pricing in 46 basis points of cuts this year before Waller’s comments.
Chicago Fed President Austan Goolsbee also said on Monday that thus far the surge in tariffs has had a more modest impact on the economy relative to what was expected.
The dollar was boosted by the Fed’s “hawkish hold” on Wednesday, when the U.S. central bank left interest rates unchanged while Chair Jerome Powell said policymakers expect inflation to rise over the summer due to the Trump administration’s tariffs.
Powell will testify before the U.S. Congress on Tuesday and Wednesday.
The dollar also came under pressure on Monday as it appeared more likely that Iran’s retaliation to the U.S. bombings would be limited.
“It doesn’t look like at the moment that Iran is going to get military support from Russia or China to retaliate,” said Given.
Iran’s military said it carried out a missile attack on the Al Udeid U.S. airbase in Qatar on Monday. Iran said the attack was “devastating and powerful,” but U.S. officials said no U.S. personnel were killed or injured.
The U.S. currency was lifted earlier as investors unwound riskier positions on concerns about an expanding conflict in the Middle East.
The dollar gains were largely due to traders unwinding trades that had used it as a funding currency, said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York. These included trades betting on strength in riskier emerging market currencies.
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