Dollar Steady as Investors Await US Inflation Data
Dollar Steady Despite Holiday in Asian Markets
On Monday, the dollar remained steady as a holiday in most major Asian markets subdued the start of what could turn into a busy week. All eyes are on U.S. inflation data for clues on when the Federal Reserve may start to cut rates.
Euro and Pound Show Minimal Movement
The euro was down slightly at $1.0778, edging off a 10-day high touched in early trading. Meanwhile, the pound was flat at $1.2632. The approaching release of U.S. CPI data for January on Tuesday capped moves.
Changing Expectations of Central Bank Rate Cuts
Expectations of when and how quickly central banks will cut interest rates as inflation falls are a significant driver of currency markets at present. Strong jobs data earlier this month has largely taken a March Federal Reserve rate cut off the table, with markets currently seeing a move in May as more likely than not.
Analysts’ Expectations for US Core CPI Data
Analysts expect U.S. core CPI to come in at 0.3% month on month in January, but a still elevated 3.8% year on year. Fed rates setters are saying they want more evidence that inflation will stay near the 2% target before considering a cut.
Impact of UK CPI Inflation Data
On Wednesday, a reading of British CPI inflation will similarly influence opinion on when the Bank of England will start to cut interest rates – it is currently seen lagging the Fed and European Central Bank.
Japanese Yen and FX Moves
Markets are also keeping an eye on the highly rate-sensitive Japanese yen, which strengthened sharply late last year as markets priced in early U.S. rate cuts, but has since weakened as that timing got pushed back. Japanese Finance Minister Shunichi Suzuki said on Friday that authorities were closely watching FX moves.
“Dollar/yen is likely to be driven mainly by U.S. developments in the near future, but intervention warnings are likely to increase in frequency around the 150 level,” said Barclays analysts in a note. Japanese authorities intervened in late 2022 to prop up the yen, which weakened to as much as 151.94 per dollar.
