Bridget Riley
TOKYO (Reuters) – The dollar was steady on Wednesday after hitting a four-week high against other currencies overnight as market participants awaited a key U.S. inflation gauge and the Federal Reserve’s latest interest rate outlook due later in the day.
The US dollar rebounded after a better-than-expected jobs report on Friday raised prospects for solid growth and firmer inflation, reducing the likelihood of the US central bank cutting interest rates in coming months.
According to the CME FedWatch tool, the market is now pricing in about a 56% chance of a September rate cut, down from 77.8% a week ago.
The US consumer price index is due to be released at 18:30 GMT on Wednesday, just hours before the Fed concludes its two-day policy meeting, giving investors a chance to gauge the inflation situation.
Economists surveyed by Reuters expect headline consumer price inflation to ease to 0.1 percent from 0.3 percent last month, while core price inflation will be flat at 0.3 percent month-on-month.
The Fed, meanwhile, is expected to keep interest rates steady at 5.25% to 5.5%, with attention focused on policymakers’ latest “dot plot” economic forecasts and a press conference by Chairman Jerome Powell for clues as to when rate cuts might begin.
Kieran Williams, head of Asia FX at InTouch Capital Markets, said in the latest dot plot that “the consensus seems to be that the number of rate cuts in 2024 will be reduced to two from the current three.”
However, Williams said Powell is likely to take a more dovish tone at his news conference given disappointing economic growth data since the Fed last met.
The dollar index, which compares the greenback with other major currencies, was little changed at 105.27 after hitting its highest level since May 14 at 105.46 overnight.
The euro was little changed at $1.07375 after falling to $1.07195 on Tuesday, its lowest since May 2, as investors continued to react to French President Emmanuel Macron’s call for early general elections following gains for far-right parties in European elections.
The pound was unchanged at $1.2735. UK gross domestic product figures for April are due to be released later on Wednesday.
Japan’s wholesale prices rose 2.4% in the 12 months to May, according to data released by the Bank of Japan on Wednesday, beating market expectations of a 2% increase.
The yen fell to 157.40 yen the previous day, its lowest level since June 3, before trading flat at 157.16 yen to the dollar.
The Bank of Japan is also widely expected to meet this week to consider whether to keep interest rates on hold and provide clearer guidance on how it plans to shrink its massive balance sheet.
“The Bank of Japan will have to walk a tightrope at its policy meeting this week to avoid inadvertently fuelling yen outflows, while at the same time supporting economic growth and avoiding turmoil in the government bond market,” said Wei-Liang Chang, currency and credit strategist at DBS.
He added that Japan’s central bank is likely to discuss reducing bond purchases to forestall any selling pressure on the yen, but dollar/volatility this week will depend heavily on Wednesday’s U.S. Consumer Price Index (CPI) and the Federal Reserve meeting.
“However, the bar for another unexpected upswing in US interest rates and the US dollar seems quite high and we do not foresee USD/JPY retesting the $160 level.”
After the yen fell to a 34-year low of 160.245 to the dollar in late April, Japan carried out multiple official interventions totalling 9.79 trillion yen ($62.31 billion).
In cryptocurrencies, Bitcoin last rose 0.08% to $67,339.00.
(1 dollar = 157.1100 yen)
(Reporting by Bridget Riley and Christopher Cushing Editing)
