By Stefano Rebaudo

(Reuters) – The safe-haven dollar edged down on Thursday on increasing risk appetite with traders looking ahead to speeches from key Federal Reserve policymakers and economic data later in the day for clues on the pace of interest rate cuts.

Meanwhile, the Swiss franc rose after the Swiss National Bank cut interest rates by 25 basis points. Future markets and some analysts expected a bigger cut of 50 bps after the Federal Reserve made such a move last week.

European and Asian stocks extended a China-led rally, fuelled by optimism over the country’s aggressive stimulus package and news that more support could be in the works.

“These days, in the forex market, it’s all about the Federal Reserve monetary path and U.S. economic data,” said Nick Andrews, forex strategist at HSBC.

The dollar rebounded sharply overnight from its lowest levels in over 14 months. It tumbled on Tuesday after data showed that U.S. consumer confidence dropped by the most in three years in September amid mounting fears over the labour market, increasing market bets on Fed rate cuts.

“Beijing (stimulus plan) has juiced the markets during what was otherwise a typically quiet day ahead of U.S. data,” said Matt Simpson, senior market analyst at City Index.

The , which measures the currency against the euro, sterling, yen and three other major peers, eased 0.20% to 100.73, following a 0.57% jump on Wednesday, its biggest one-day gain since June 7.

Mark Haefele, chief investment officer at UBS Global Wealth Management, sees a weak dollar as the Fed will lower rates at a faster pace than its peers.

The Swiss franc rose 0.4% versus the dollar to 0.8468, after the SNB decision and was up 0.25% at 0.9442 versus the euro.

Markets had priced in a 55% probability of a 25 basis point cut before the announcement.

SNB Chairman Thomas Jordan said the central bank was ready to cut rates again and recently acknowledged difficulties that the recent rise in the franc has created for exporters.

“This 25 bps rate cut is the most dovish you could ask for,” said Charlotte de Montpellier, senior economist at ING.

“Not only is the SNB making it very clear that further rate cuts may be necessary, but it has also revised its inflation forecasts very sharply downwards.” Later on Thursday, Fed Chair Jerome Powell is scheduled to give pre-recorded remarks at a conference in New York, where New York Fed President John Williams will also speak. Boston Fed President Susan Collins and Fed Governors Michelle Bowman and Lisa Cook take to the podium at various other venues as well.

Weekly U.S. jobless claims data will be closely scrutinised, given the Fed’s shift in focus to employment over inflation.

The euro rose 0.13% to $1.1148, after pulling back from $1.1214, a high not seen since July last year.

Some analysts said a better outlook for Chinese demand after the stimulus plan announcement fed back into expectations for the economies of Germany and, more broadly, Europe.

The yen hit a three-week low of 145.04 per dollar and last fetched 144.56.

Investors were closely watching political developments as the Liberal Democratic Party will choose a new leader on Friday, with the winner due to take over as prime minister due to the party’s majority in parliament.

A win for Sanae Takaichi would have the biggest impact on the yen’s performance as she favours maintaining a loose BoJ policy and a weaker yen.

“One reason the yen weakened a little is the uncertainty about LDP elections, which start tomorrow; a Takaichi win could be quite reflationary,” HSBC’s Andrews argued.

MUFG estimated a probability of 20% for Sanae Takaichi to win and of 45% for Shinjiro Koizumi, adding that it was unlikely that one candidate would secure a majority in the first round.

Minutes from the Bank of Japan’s July meeting, when the central bank raised short-term interest rates, showed policymakers were divided on how quickly the central bank should raise rates further.

The Australian dollar added 0.75% to $0.6873, finding its feet after Wednesday’s one percent retreat from a 19-month peak of $0.6908. [AUD/]

The rose 0.46% to 7.0 per dollar in offshore trading after it pulled back on Wednesday from its highest since May of last year at 6.9952.

(This story has been refiled to remove the extraneous word ‘would’ from the quote, in paragraph 20)

Investing.com — Citi has updated its forecast for the , providing insights into the pair’s trajectory for both the medium-term and long-term.

The bank’s strategists highlight that the recent depreciation of the yen is driven largely by a retrospective narrative tied to Japan’s digital account deficit. However, they suggest that this narrative of structural yen weakness is a “fallacy,” with the currency’s current status being more nuanced.

In its medium-term base case forecast, Citi suggests the yen could weaken, potentially driving the USD/JPY towards 150 by the end of 2024.

However, looking further ahead, strategists caution the pair could dip below 140 in early 2025, continuing its downward path to close near 130 by the end of next year.

In explaining this forecast, Citi points out that various factors could reverse the recent yen weakness.

Among these is the potential repatriation of foreign earnings by Japanese corporations, which could provide upward pressure on the yen. Moreover, the travel surplus and increasing royalties on intellectual property are improving Japan’s current account balance, which might further support the currency’s strength over time.

Citi also challenges the prevalent view that Japan’s digital account deficit reflects a long-term structural weakness.

“In our view, this is essentially a trend-following argument that seeks a retrospective narrative of the JPY depreciation that has continued for the past ten years,” Citi strategists noted.

“It is based on a distorted story of the actual picture of Japan’s BoP, and the rectification of this distortion could take several years. During this period short JPY positions held by a range of economic entities will remain, and there should be steady market forces that work to overturn these positions.”

Still, Citi remains cautious about the yen’s near-term outlook. The bank acknowledges that significant factors, such as portfolio investments and the broader financial balance, will continue to influence USD/JPY fluctuations.

They also warn that the pair remains sensitive to marginal changes in market conditions and flows.