Feb 15 2024: The dollar edged lower from its recent three-month peak against a basket of major currencies on Wednesday, as investors took stock of gains following a hotter-than-expected U.S. inflation report.
The inflation figures for January pushed back expectations of an initial Federal Reserve rate cut to later in the year.
The dollar also softened against the yen after Japanese officials cautioned against what they termed as rapid and speculative movements in the yen.
Against the yen, the dollar slipped by 0.2% to 150.52, remaining close to the three-month high reached against the Japanese currency on Tuesday. Since the beginning of the year, the U.S. dollar has appreciated by about 10 yen.
Following Tuesday’s release of the U.S. consumer price index (CPI), which showed a 3.1% increase year-on-year in January, exceeding expectations of a 2.9% rise, futures markets are now pricing in no rate cut in March and an approximately 80% likelihood of easing at the June meeting, according to LSEG’s rate probability app. Just two weeks ago, markets had anticipated the first rate cut to occur in May.
Additionally, futures are currently pricing in approximately three 25-basis-point rate cuts this year, down from around five cuts anticipated two weeks earlier.
The dollar index, gauging the dollar against six other major currencies, slipped by 0.1% to 104.72, after reaching a fresh three-month high of 104.97.
Vassili Serebriakov, FX strategist at UBS in New York, commented, “The stronger dollar is currently the path of least resistance. We don’t believe it’s time yet to counter those moves. However, circumstances can change rapidly, and we have retail sales data due on Thursday, although we anticipate another robust figure. This should further support the strength of the dollar.”
Economists are anticipating a 0.1% decline in U.S. retail sales for January, following a 0.6% increase in December, according to a Reuters poll.
In the UK, sterling slipped by 0.2% against the dollar to $1.2563, briefly touching a more than one-week low, as data revealed that UK inflation did not accelerate as expected in January. This could alleviate some pressure on the Bank of England (BoE) to maintain rates at their current levels.
UK inflation remained steady at an annual rate of 4.0% in January, unchanged from December but lower than economists’ projections of a 4.2% increase.
