Written by Uncle Banerjee
SINGAPORE (Reuters) – The dollar was steady on Tuesday, while the yen hovered near a two-week low as investors awaited this week’s key inflation report that is likely to shape the U.S. interest rate outlook. This raised concerns about intervention.
Currency markets remained calm this week, with investment following weaker-than-expected recent U.S. labor market data and comments from officials that suggested the U.S. central bank was unlikely to take action. The house is waiting to see what path the Fed will take this year. Raise interest rates even more.
Weaker inflation has forced investors to dial back expectations for rate cuts this year, with investors now pricing in 42 basis points of easing this year, compared to the 150 bps expected in early 2024. I’m here.
Also, according to the CME FedWatch tool, the probability of a rate cut in September is priced at 60%, up from 75% the previous month.
All eyes will be on Wednesday’s Consumer Price Index (CPI) this week, with core consumer prices expected to rise 0.3% month-on-month in April, slowing from the 0.4% rise in the previous month, according to a Reuters poll. .
But before that, the U.S. Producer Price Index (PPI) is expected to be released later on Tuesday, with analysts looking to get a sense of whether inflation is on track to the Fed’s 2% target. This will be analyzed in the following.
“The weak CPI following the weak employment report will reignite market expectations for a July rate cut, weighing on the dollar,” said Nicholas Chia, Asia macro strategist at Standard Chartered. Ta.
The euro fell slightly to $1.0786 but is up 1% against the dollar so far this month, while the pound is up about 0.5% so far in May and bought $1.2559.
The dollar index, which measures the value of the U.S. currency against six rival currencies, came in last place at 105.27. The index fell about 1% for the month.
Nearly two-thirds of economists polled by Reuters expect the Federal Reserve to cut key interest rates twice starting in September. This is an increase from just over half of economists in the previous survey.
With interest rate cuts not likely until July or even September, and the next earnings season in two months, there are no obvious triggers other than inflation and economic data to change the near-term direction of the market, money said. Basu Menon, Managing Director, said. OCBC’s investment strategy.
U.S. retail sales figures will be released on Wednesday, and industrial production statistics will be released on Thursday.
“Signs that the US economy is cooling should be positive for global markets because it also means the outlook for US inflation and interest rates is positive,” Menon said.
Anxiety about the yen
Traders are once again on edge as the yen approaches levels that raise suspicions of Japanese government intervention. The dollar last traded at 156.41, hitting a two-week low of 156.50 in early trading.
Japan’s Ministry of Finance is suspected of intervening in the foreign exchange market from late April to early May, after the yen hit a 34-year low of 160.245 yen on April 29.
However, the market remains bearish on the currency given the wide gap between Japan’s ultra-low yields and interest rates in other major countries.
Japan’s Finance Minister Shunichi Suzuki said on Tuesday that the government will work closely with the Bank of Japan on foreign exchange to ensure there is no friction between mutual policy objectives.
“We will take every measure to closely monitor the exchange rate,” Suzuki said, adding that it is important that the exchange rate moves stably, reflecting fundamentals, rather than focusing on levels.
The yen received temporary support on Monday as the Bank of Japan sent a hawkish signal by lowering the offering amount of some Japanese government bonds.
Among other currencies, the Australian dollar fell 0.11% to $0.6601, while the New Zealand dollar was flat at $0.6016.
(Reporting by Ankur Banerjee in Singapore; Editing by Edwina Gibbs and Sonali Paul)
