Dollar Stable as Inflation Data Reinforces Rate Cut Bets in June; yen in focus – 01-04-2024

The dollar held broadly steady Monday as data showing a decline in US prices supported bets that the Federal Reserve could cut interest rates in June, while the yen hovered around 152 per dollar to keep traders on their toes to the threat of intervention.

The personal consumption expenditures (PCE) price index rose 0.3% in February, the Commerce Department’s Bureau of Economic Analysis said on Friday, compared with the 0.4% increase that economists polled by Reuters had expected. predicted.

The report also showed that consumer spending rose by the most in just over a year last month, underscoring the resilience of the economy. Most markets around the world were closed on Friday, with European markets also closed on Monday.

Federal Reserve Chairman Jerome Powell said Friday that the latest U.S. inflation data was “in line with what we would like to see,” in comments that echoed his remarks after the Fed’s policy meeting last month.

“The Fed’s willingness to tolerate inflation well above 2% while still considering rate cuts supports risky assets,” said Mansoor Mohi-uddin, chief economist at the Bank of Singapore.

Markets now expect a 68.5% chance that the Fed will cut rates in June, up from a 57% chance at the end of last week, the CME FedWatch tool showed. Traders are also expecting a 75 basis point rate cut this year.

Citi strategists said the Fed remains on track to cut rates in June. “If activity continues, the Fed could make three rate cuts this year. But with further weakening in the labor market, we expect five rate cuts this year.”

Investor attention will switch to March employment data due later, with a weak jobs report further increasing the likelihood that the Fed will begin its easing cycle from June.

The euro was 0.03% lower at $1.0787, close to the low of $1.0769 reached last week and reached more than a month ago. Sterling last traded at $1.2637, up 0.12% today.

The dollar index, which measures the U.S. currency against six rivals, was 0.057% higher at 104.54, close to a six-week high of 104.73 reached last week.

The spotlight in the currency market has been on the yen as its move towards levels last seen in 1990 revived the threat of intervention by Japanese authorities.

The yen hit a 34-year low against the dollar at 151.975 on Wednesday and was last at 151.395 per dollar on Monday.

Japan intervened in the currency market in 2022, first in September and again in October, as the yen slid to a 32-year low of 152 per dollar.

Japan’s plans for the yen remain difficult to predict. Japan’s fiscal year is over, which means the Bank of Japan doesn’t have to worry about sudden yen movements impacting balance sheets.

But news of last week’s emergency meeting of the three monetary authorities – the Ministry of Finance (MOF), the BOJ and the Financial Services Agency – and the jaw-dropping of officials appear to have worked to bring the yen back from a low. in 34 years.

Finance Minister Shunichi Suzuki said on Monday he would not rule out options against excessive price movements and would respond appropriately, repeating his warning of rapid moves in the yen.

The latest weekly data from the US markets regulator showed speculators holding a net short position in the yen worth $10.64 billion, taking their bets back to the two-year high of $11 billion they held in early March.

China’s yuan weakened on Monday, under pressure from the dollar, even as the latest Chinese data showed the economy’s recovery is gaining momentum and the central bank is making continued efforts to stabilize the currency.

In the spot market, the yuan opened at 7.2227 per dollar and last changed hands at 7.2292. The offshore yuan traded at 7.2508 per dollar.

In other currencies, the Australian dollar was 0.08% higher at $0.6521, while the New Zealand dollar was little changed at $0.59805.

In cryptocurrencies, bitcoin last rose 1% to $70,425.88. Ether was 3% higher at $3,600.