Aug 13 2024: The dollar was mixed on Tuesday, holding steady as investors awaited U.S. economic data that could impact expectations for significant interest rate cuts. Meanwhile, a rise in Japanese stocks helped stabilize yen carry trades.
Dollar and Yen Movements
The dollar gained 0.33% to 147.72 yen, after briefly reaching a one-week high of 148.23 yen overnight, before profit-taking set in.
Japanese Parliament Session
Sources revealed that Japan’s parliament is set to hold a special session on August 23 to review the central bank’s recent interest rate hike.
Euro and Sterling Updates
The euro was at $1.0938, edging closer to resistance levels of $1.0944 and $1.0963. Sterling traded at $1.2778, while the dollar index was steady at 103.13.
Upcoming Economic Indicators
Producer price index (PPI) data, due later today, will precede the important consumer price index (CPI) report on Wednesday. The PPI is expected to show a 0.2% increase in both headline and core measures, which could influence market expectations for the Federal Reserve’s policy.
Impact of CPI and Retail Sales
The CPI report and July retail sales are crucial for determining whether the Fed will implement a 25 or 50 basis point rate cut in September. Futures markets are currently split on this possibility, having briefly anticipated a larger cut during last week’s market turbulence.
According to JPMorgan analysts, a robust CPI and retail sales report might lead the bond market to revert to a 25 basis point cut expectation, while weaker data could prompt speculation of a 50 basis point cut or more.
Market Reactions
A stronger inflation reading would likely drive Treasury yields higher and support the dollar, whereas weaker data could heighten recession fears and bolster the yen and Swiss franc as safe havens.
Futures Market Expectations
The futures market is pricing in recession risks, with expectations for 101 basis points of Fed easing by year-end and over 120 basis points for next year, contrasting with the Atlanta Fed’s 2.9% annual growth estimate.
Australian and New Zealand Dollars
The Australian dollar rose 0.17% to $0.6597, and the New Zealand dollar increased 0.3% to $0.6036. Australian wage growth for the June quarter was slower than expected, suggesting a potential easing in the labor market.
