Apr 9 2024: The U.S. dollar grappled with direction on Tuesday as investors exercised caution prior to the release of inflation data scheduled for Wednesday. Meanwhile, U.S. Treasury yields increased as markets reduced their expectations for future Federal Reserve rate cuts.
The yen remained near multi-decade lows, prompting traders to stay vigilant for potential intervention signals.
In Fed fund futures, traders anticipated a total of 62 basis points (bps) in Federal Reserve rate cuts late on Monday, marking the lowest rate-cut expectation since October last year and down from 150 basis points in January.
The likelihood of a 25 bps cut in June stood at 49%, down from 57% a week ago, according to CME Group (NASDAQ:CME) data.
Last week, the U.S. dollar concluded lower as traders analyzed mixed economic data, including a surprising slowdown in U.S. services expansion juxtaposed with job growth surpassing expectations.
Guy Miller, chief market strategist at Zurich Insurance Group (OTC:ZFSVF), cautioned about the volatility of U.S. payroll numbers over time but acknowledged a tight labor market scenario.
The dollar index, which monitors the currency against six major peers, experienced a marginal 0.01% decline to 104.05.
Wednesday’s U.S. consumer price inflation data will provide additional insights into the Fed’s policy direction.
Derek Halpenny, head of research global markets at MUFG Bank, highlighted cautiousness following recent positive surprises, noting that weaker data might increase expectations for a June rate cut.
While the Fed has conveyed hawkish signals, with Dallas Fed President Lorie Logan and Bank of Chicago President Austan Goolsbee emphasizing the need to assess monetary policy carefully, some analysts pointed to geopolitical risks potentially driving demand for safe-haven assets, including the U.S. dollar.
Hopes for a Gaza ceasefire waned, affecting currency dynamics. The U.S. dollar saw a minor 0.02% rise against the yen, hovering near a 34-year high, with the threat of intervention keeping the dollar below the 152 yen level.
Jane Foley, senior forex strategist at RaboBank, noted the Ministry of Finance’s potential intervention if the dollar approached 155 yen, particularly in response to strong U.S. inflation data and weak Japanese economic indicators.
Bank of Japan Governor Kazuo Ueda suggested considering reducing monetary stimulus if inflation accelerates, influencing market sentiment.
Additionally, the euro and sterling showed slight gains against the dollar, while euro zone banks adjusted mortgage approval criteria amid economic challenges.
The upcoming ECB policy meeting is expected to maintain rates and emphasize data-driven decisions, reflecting ongoing economic assessments.
