By Brigid Riley
TOKYO (Reuters) - The dollar hung just off a four-month high on Thursday as the market continued to digest Republican Donald Trump's win in the U.S. presidential election, while investors eyed several central bank decisions that will be topped off by the Federal Reserve.
The Fed is expected to cut interest rates by 25 basis points later in the day, and the market focus will be on any clues suggesting the U.S. central bank could skip a cut in December.
Last week's October jobs report came in weaker than expected, raising questions over the degree of softness in the labour market, though this data was clouded by the impact of recent hurricanes and labour strikes.
The Fed's decision comes on the back of the U.S. presidential election, with a victory by Trump fuelling questions over whether the bank may proceed to reduce rates at a slower and shallower pace.
While the former president's comeback to the White House received a "market-pumping" reaction, there were "mixed feelings when you dig a little deeper into the moves," said senior market analyst Matt Simpson at City Index.
U.S. equities at record highs and a weaker yen appeared to be an "endorsement for Trump," but a stronger dollar and higher U.S. Treasury yields indicated markets were pricing in a less dovish Fed going forward, he said.
Trump’s policies on restricting illegal immigration, enacting new tariffs, lowering taxes and deregulation may boost growth and inflation and crimp the Fed's ability to cut rates.
A full sweep by Republicans would allow the party to make larger legislative changes and in turn likely provoke larger currency moves, although control of the House of Representatives remains in question.
Markets now see about a 70% chance the Fed will also cut rates next month, down from 77% on Tuesday, according to the CME Group's (NASDAQ:CME) Fed Watch Tool.
U.S. Treasuries fell sharply on Wednesday, propelling yields to multi-month highs.[US/]
The dollar index, which measures the greenback against six major peers, edged down 0.05% to 105.06 after surging to its highest since July 3 at 105.44 in the previous session.
The yen was up 0.09% at 154.5 per dollar, touching 154.715 earlier in the session, its lowest against the greenback since July 30.
If markets begin to expect fewer Fed rate cuts as well as a "Red Sweep" in Washington, the dollar/yen has room to rise above 155, which could ramp up verbal warnings from Tokyo, said Nomura Securities currency strategist Jin Moteki.
"We think...160 for dollar/yen is unlikely in the short-term."
Japan's top currency diplomat Atsushi Mimura flagged on Thursday readiness to act against the weaker yen, in the government's strongest warning against speculators.
China's yuan fell to a near three-month low against the dollar on Thursday, although edged higher as the country released a slew of trade data.
The offshore yuan traded at 7.1925 yuan per dollar, up about 0.18%.
The euro was up 0.06% at $1.0736, having tumbled as low as $1.068275 for the first time since July 27 on Wednesday, while sterling picked up 0.28% to $1.2915.
Ahead of the Fed, the Bank of England is likely to cut interest rates for the second time since 2020 but the big question for investors is whether it sends a signal about subsequent moves after the government's inflation-raising budget.
The Riksbank is seen easing by 50 basis points, and the Norges Bank is set to stay on hold.
Elsewhere, the Aussie rose 0.7% to $0.66175, while the kiwi traded at $0.5977, up 0.64%.
Bitcoin hovered off Wednesday's record high of $76,499.99, down about 1% around $75,200, and ether rallied over 6% to its highest since early August at $2,881.16. Trump has also expressed favourable views on cryptocurrencies.