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Dollar steady as US inflation data takes spotlight

Published 05/12/2024, 09:06 PM
Updated 05/13/2024, 01:35 AM
© Reuters. Euro, Hong Kong dollar, U.S. dollar, Japanese yen, British pound and Chinese 100-yuan banknotes are seen in a picture illustration shot January 21, 2016.   REUTERS/Jason Lee/Illustration/File Photo
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By Brigid Riley

TOKYO (Reuters) -The dollar consolidated against major peers on Monday as market participants awaited U.S. inflation data to assess the prospects of interest rate cuts this year.

After a softer-than-expected U.S. payrolls report for April and seemingly dovish Federal Reserve policy announcement earlier this month, expectations have increased for rate reductions this year.

Markets have priced in a 61.2% chance of some degree of rate reductions to begin at the Fed's September meeting, with about 50 basis points of cuts in total expected, CME's FedWatch Tool showed.

But comments by Fed officials last week were varied as speakers debated whether interest rates were high enough. A jump in consumers' inflation expectations, revealed in a survey on Friday, could further complicate the conversation.

With recent data indicating the economy is slowing, investors are looking to confirm how sticky inflation is.

The market will have a chance this week, with inflation readings in the form of the producer price index (PPI) on Tuesday followed by the consumer price index (CPI) on Wednesday.

"For the wheels to truly fall off of the U.S. dollar, incoming data needs to point to disinflation, not just pockets of weakness here and there," said Matt Simpson, senior market analyst at City Index.

"If inflation data ticks higher again this month it will surely undo the work of softer growth and slightly weaker employment figures."

The dollar index, which measures the greenback against a basket of currencies, was flat at 105.31, following its first weekly gain last week after two successive weeks of decline.

This week's CPI will be crucial for the Federal Open Market Committee's (FOMC) decision to start easing rates in September, said Carol Kong, a currency strategist at the Commonwealth Bank of Australia (OTC:CMWAY).

"If we get a strong CPI this week, it will just leave the FOMC four more monthly CPI reports before the September meeting. I don’t think four benign CPI readings will give the FOMC enough confidence to start cutting rates in September."

Fed Chair Jerome Powell will make an appearance on Tuesday at a meeting of the Foreign Bankers' Association in Amsterdam.

INTERVENTION JITTERS

As markets look ahead this week to U.S. CPI, the yen won't be far from traders' minds amid an ongoing risk of currency intervention by Japanese authorities.

Against the yen , the dollar was holding solid at 155.80, after touching its highest since May 2 at 155.965.

The dollar has marched up against the yen after a 3% decline at the start of the month, its steepest weekly percentage drop since early December 2022, after two suspected interventions.

Those spikes of yen strength appear to have spooked some yen bears, at least for now.

Yen futures data from the CFTC showed non-commercial short positions have fallen sharply from the 179,919 contracts on April 23, which was the most since June 2007.

The currency received some support on Monday after the Bank of Japan sent a hawkish signal by cutting its offer amount for a segment of Japanese government bonds in the Asian morning.

The euro was little changed at $1.07695 as the euro zone prepares for an inflation reading of its own on Friday.

Sterling was firm at $1.2522.

China's offshore yuan slid 0.1% to 7.2414 while the onshore yuan fell to its lowest since April 30 at 7.2385, as traders awaited an announcement from the United States of new China tariffs.

At the same time, the Chinese central bank said over the weekend that new bank lending fell more than expected in April and broad credit growth hit a record low.

Separate data on Saturday showed Chinese consumer prices rose in April while producer prices extended declines.

© Reuters. Euro, Hong Kong dollar, U.S. dollar, Japanese yen, British pound and Chinese 100-yuan banknotes are seen in a picture illustration shot January 21, 2016.   REUTERS/Jason Lee/Illustration/File Photo

The central bank pledged to support economic recovery.

In cryptocurrencies, bitcoin last rose 0.68% to $60,889.51.

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