Written by Gertrude Chavez-Dreyfus and Joyce Alves
NEW YORK/LONDON (Reuters) – The dollar edged lower on Wednesday after gaining in early trading on better-than-expected U.S. inflation data. The timing of federal policy could become clearer as investors consolidated gains ahead of further economic data this week. The Reserve Bank will start cutting interest rates this year.
The US consumer price index (CPI) rose more strongly than expected in February, suggesting some resilience in inflation.
CPI rose 0.4% in February, in line with expectations, but rose 3.2% year-on-year, slightly higher than the expected 3.1% rise. Core numbers also exceeded expectations.
Although the market sees little chance of the Fed cutting rates before the summer, the probability of a June rate cut has eased only slightly to around 67% from 71% earlier this week, according to the LSEG interest rate probability app.
In late morning trading, the dollar index, which measures the greenback against a basket of peer currencies, fell 0.1% to 102.85 last week, posting its biggest weekly decline since early January. But for the year, the dollar has gained 1.5% so far.
“We believe the impact (of the CPI report) on short-term changes in Federal Reserve policy will be minimal,” said Karl Sciamotta, chief market strategist at Kopay in Toronto. “We know that we should not extrapolate into the future.”
“Next month’s communications, however, should show a slightly more hawkish tone, tilting risks to the dollar’s upside,” he added.
Investors are now looking to Thursday’s U.S. retail sales, producer price index (PPI) report and jobless claims for further evidence of an economic slowdown.
Federal Reserve Chairman Jerome Powell said last week that the U.S. central bank is “not far off” from having the confidence that inflation will fall enough to start cutting interest rates.
Elsewhere, the pound rose 0.1% to $1.2804, data showed Britain’s economy returned to growth in January after entering a shallow recession in late 2023.
The euro also rose, gaining 0.2% against the dollar to $1.0943.
The results of the long-awaited review of the European Central Bank framework show that the ECB wants banks to withdraw from free cash, but at a slow pace that does not disrupt the financial system or credit creation.
ECB policy member François Villeroy de Galhau said the ECB was likely to start cutting interest rates in the spring, from April to April 21, as “victory” against inflation was in sight. Ta.
Meanwhile, rising borrowing costs are hurting the eurozone economy, with industrial production falling 3.2% in January from the previous month, data showed.
The dollar rose 0.1% against the yen to 147.81 yen. The Japanese currency suffered its biggest decline in a month on Tuesday after Bank of Japan Governor Kazuo Ueda gave a rather gloomy assessment of the domestic economy.
Traders are now focused on early estimates for spring wage negotiations to be released on Friday. The results will be crucial to the Bank of Japan’s policy calculations when it decides whether to lift negative interest rates at its March 18-19 meeting.
Significant wage increases are expected, with many of Japan’s largest companies saying they have already agreed to fully meet union demands for higher wages.
The country’s largest trade union confederation is demanding a wage increase of 5.85% this year, the first increase of 5% in 30 years.
Among cryptocurrencies, Bitcoin hit a new high of $73,678. The previous price was $72,549, an increase of 2.71%.
Ether rose 0.5% to $3,971.
(Reporting by Gertrude Chavez-Dreyfuss in New York, Joyce Alves in London and Brigid Riley in Tokyo; Editing by Mark Potter and Jonathan Oatis)
