Investing.com – The U.S. dollar fell on Monday ahead of the Federal Reserve’s latest meeting, while the yen soared amid speculation that Japanese authorities would intervene to try to stem its seemingly steady decline.
At 04:45 ET (0845 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was trading 0.2% lower at 105.630, having risen to 106.00 on Thursday.
PCE data points to late rate cuts
The dollar dipped lower to start the new week but was still strong in April, up more than 1% as traders largely discounted most expectations for an early Fed rate cut.
Friday’s data, the Fed’s preferred inflation gauge, was hotter than expected in March, indicating rate cuts will come much later this year than expected in early 2024.
This week the focus is on the meeting, which ends on Wednesday. The central bank is expected to keep rates steady and potentially offer a hawkish outlook given recent volatility in U.S. inflation.
“PCE data confirmed that inflation remains too high, and last month’s very strong employment figures are likely to prompt Chairman Jerome Powell to take a more cautious tone on the prospect of rate cuts,” ING analysts said in a note.
The Fed meeting comes ahead of Friday’s monthly jobs report, which will provide a new look at the strength of the US labor market.
Economists expect the economy to add 243,000 in April, up from 303,000 in March, while economic growth is expected to remain steady at 3.8%.
remove advertising
.
Intervention to support the yen?
Most of the currency market activity was seen in Asia on Monday, where the index fell 1.8% to 155.56 after an earlier rise to 160.245.
The drastic nature of the move prompted many to ask authorities to intervene, although Japan’s chief currency diplomat Masato Kanda declined to comment when asked whether authorities had intervened.
Forex markets have been on edge for weeks awaiting any sign of Tokyo moving to support the currency, which has fallen to a 34-year low against the dollar even as the central bank exited negative interest rates last month.
“Although not yet official, there are strong indications that Japan intervened in the foreign exchange market this morning after USD/JPY hit 160.0,” ING added. “If we follow the same scenario as September 22, 2022, USD/JPY should remain volatile throughout the session before stabilizing around 156-157.”
The euro rises after the publication of inflation data in Germany
In Europe, the index rose 0.3% to 1.0722, benefiting from a weakening dollar as traders digested a series of reports on European inflation.
in April rose 3.3% year-on-year, up 0.7% for the month, slightly below expectations.
A number of German states also published consumption data for April, with the most populous state, North Rhine-Westphalia, posting figures that remained slightly above the European Central Bank’s medium-term target of 2/0%.
The ECB plans to cut interest rates in June, but the outlook remains clouded by rising energy prices, persistently high services inflation and ongoing geopolitical tensions.
remove advertising
.
rose 0.3% to 1.2528, taking advantage of recent dollar weakness.
“The recent rollercoaster of policy comments from the Bank of England and significant rate hikes in the US have left the Sonia curve pegged to the prospect of a rate cut in August, but also signals the market’s reluctance to price in further cuts,” ING added.
The stock was otherwise trading little changed at 7.2462, although it rose 0.4% to 0.6558 on speculation that higher-than-expected first-quarter inflation figures would prompt further interest rate hikes by the Reserve Bank Australia.