Bridget Riley
TOKYO (Reuters) – The dollar consolidated against major currencies on Monday as market participants awaited U.S. inflation data to gauge prospects for interest rate cuts this year.
Following a softer-than-expected US jobs report for April and a seemingly dovish statement from the Federal Reserve earlier this month, expectations for a rate cut this year have increased.
Markets have pegged the likelihood of some rate cuts at the Fed’s September meeting at 61.2%, with a total expected rate cut of about 50 basis points, the FedWatch Tool CME showed.
But comments from Fed officials varied last week as speakers debated whether interest rates were high enough. A jump in consumer inflation expectations revealed in Friday’s survey could further complicate the conversation.
With recent data pointing to a slowing economy, investors are hoping to confirm how resilient inflation is.
The market will have a chance this week with inflation figures coming in the form of the Producer Price Index (PPI) on Tuesday, followed by the Consumer Price Index (CPI) on Wednesday.
“For the US dollar to actually fall, the data coming in needs to point to deflation rather than just pockets of weakness here and there,” said Matt Simpson, senior market analyst at City Index.
“If inflation data rises again this month, it will certainly undo the work of weaker growth and slightly weaker employment numbers.”
The index, which measures the dollar against a basket of currencies, was unchanged at 105.31 after making its first weekly gain last week after two straight weeks of declines.
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This week’s consumer price index will be critical to the Federal Open Market Committee’s (FOMC) decision to start cutting rates in September, said Carol Kong, currency strategist at the Commonwealth Bank of Australia (OTC:).
“If we get a strong CPI this week, the FOMC will have four more monthly CPI reports left before its September meeting. “I don’t think four favorable CPI readings will give the FOMC enough confidence to start cutting rates in September.”
Fed Chairman Jerome Powell will appear at the Foreign Bankers Association meeting in Amsterdam on Tuesday.
JITTER INTERVENTION
As markets await the US CPI this week, the yen will not be far from traders’ minds amid the ongoing risk of currency intervention by Japanese authorities.
Against the yen, the dollar held at 155.80, after hitting its highest level since May 2 at 155.965.
The dollar rose against the yen after falling 3% earlier in the month, its sharpest weekly percentage fall since early December 2022, following two proposed interventions.
These surges in yen strength seem to have spooked some yen bears, at least for now.
Yen futures data from the CFTC showed non-commercial short positions fell sharply from 179,919 contracts on April 23, the highest level since June 2007.
The currency received some support on Monday after the Bank of Japan sent a hawkish signal by cutting its offering in the Japanese government bond segment this morning in Asia.
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The euro was little changed at $1.07695 as the eurozone braces for its own inflation figures on Friday.
Sterling held steady at $1.2522.
The China index fell 0.1% to 7.2414, after falling to its lowest level since April 30 at 7.2385, as traders awaited the US announcement of new tariffs on China.
At the same time, the Chinese central bank said over the weekend that new bank loans fell more than expected in April and overall lending growth hit a record low.
Separate data on Saturday showed consumer prices in China rose in April, while producer prices continued to decline.
The central bank has promised to support economic recovery.
In cryptocurrencies, Bitcoin was last up 0.68% at $60,889.51.