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Powell's comments reduce odds of December rate cut

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Dollar index rises, euro and yen weaken against greenback

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Sterling drops as BoE rate cut expectations increase

(Updated in New York afternoon time)

By Karen Brettell

NEW YORK, Oct 29 (Reuters) - The dollar gained on

Wednesday after Federal Reserve Chair Jerome Powell pushed back

against market pricing for another rate cut at the U.S. central

bank's December meeting, after the U.S. central bank lowered

rates as expected.

Wednesday's rate cut drew dissents from two policymakers,

with Governor Stephen Miran again calling for a deeper reduction

in borrowing costs and Kansas City Fed President Jeffrey Schmid

favoring no cut at all given ongoing inflation.

"The dissent from Schmid is hawkish, that captures the

sentiment from a few Fed officials so there could be some

pressure on Powell to hold back market pricing for a December

cut," said Adam Button, chief currency analyst at investingLive

in Toronto.

Powell said that U.S. central bank officials are struggling

to reach a consensus about what lies ahead for monetary policy

and that financial markets

should not assume

another interest rate cut will happen at the end of the

year.

Odds of a cut at the Fed's December meeting are now at 62%,

down from around 85% earlier on Wednesday.

The U.S. central bank further announced that it will

restart limited purchases of Treasury securities after money

markets showed signs that liquidity was

becoming scarce

, a condition the U.S. central bank has pledged to avoid.

Traders are also focused on trade talks between the U.S.

and China, with U.S. President Donald Trump due to meet China's

leader Xi Jinping on Thursday.

The dollar index was last up 0.63% on the day at 99.28,

with the euro down 0.56% at $1.1585.

Both the European Central Bank and the Bank of Japan are

expected to hold rates steady on Thursday.

The Japanese yen weakened 0.56% against the greenback to

152.86 per dollar. It had strengthened earlier after U.S.

Treasury Secretary Scott Bessent urged Japan's government to

give the central bank scope to raise interest rates, escalating

his warning to Tokyo against keeping the yen too weak through

prolonged low borrowing costs.

Bessent, who was in Japan with Trump for talks with the

newly-formed government of Prime Minister Sanae Takaichi, has

repeatedly criticised the BOJ for its slow pace of rate hikes.

STERLING AND AUSSIE

Britain's pound was among the biggest losers as traders also

adjusted for rising odds that the Bank of England will cut rates

next week.

"The Bank of England is squarely focused on inflation. But

in terms of their characterization of the outlook, one of the

pieces that they've been highlighting has been the labor

market," said Eric Theoret, FX strategist at Scotiabank in

Toronto.

"The data definitely looks to have softened. And so with

that lower inflation print I think it gives a bit more of a

green light for the Bank of England to ease," Theoret said.

Data last week showed that British inflation

unexpectedly held steady

in September. A report earlier this month also showed that

British workers' pay grew at the weakest pace since 2022 and the

jobless rate

nudged higher

.

Goldman Sachs ( GS ) said on Tuesday it expected the BoE to cut

rates next month, having previously seen no easing this year.

Sterling was last down 0.9% against the dollar at $1.3151

and reached $1.3137, its lowest since May 12.

The Canadian dollar was little changed on the day,

after earlier hitting a one-month high.

The Bank of Canada

reduced its key overnight interest rate

to 2.25% on Wednesday, as widely expected, and signaled

this could mark an end to its cutting cycle unless the outlook

for inflation and the economy changed.

In cryptocurrencies, bitcoin fell 1.37% to $111,295.