Dec 11 2024: The Japanese yen rebounded from a two-week low against the U.S. dollar on Wednesday following data indicating an acceleration in Japanese wholesale inflation. This bolstered the case for a potential Bank of Japan (BOJ) rate hike next week.
Meanwhile, the U.S. dollar remained strong against other major currencies ahead of a critical U.S. inflation report expected to offer further insight into the Federal Reserve’s interest rate trajectory.
The Australian dollar hovered near a four-month low after the Reserve Bank of Australia (RBA) adopted a dovish policy stance, while New Zealand’s kiwi slipped to its weakest level in over a year.
Yen Strengthens on Inflation Data
The dollar dipped 0.19% to 151.685 yen as of 0608 GMT, retreating from an overnight peak of 152.18 yen, its strongest level since late November.
Japan’s corporate goods price index (CGPI), which tracks the cost of goods and services sold between businesses, rose by 3.7% year-on-year in November, exceeding the 3.4% forecast and marking the fastest annual growth since July 2023.
Market-implied odds for a 25-basis-point BOJ rate hike on December 19 stood at 27%.
“The data supports a defensible case for a rate hike,” said Bart Wakabayashi, co-branch manager at State Street in Tokyo.
U.S. Dollar Steady Ahead of CPI Report
The U.S. dollar index edged higher to 106.38, supported by robust U.S. economic data and speculation that sticky inflation could delay the Fed’s anticipated rate cuts.
Traders currently assign an 85% chance of a 25-basis-point Fed rate cut on December 18. Economists expect U.S. headline and core consumer prices to have risen 0.3% in November.
“If inflation overshoots expectations, it could temper hopes for rapid rate cuts, potentially benefiting the dollar,” said James Kniveton, senior corporate FX dealer at Convera.
Antipodean Currencies Weaken on RBA and China Focus
The Australian dollar slipped 0.089% to $0.6373, near a four-month low, as dovish signals from the RBA weighed on sentiment. The kiwi declined 0.12% to $0.5794, touching its lowest level since October 2022.
Investors are watching China’s closed-door Central Economic Work Conference for updates on fiscal and monetary stimulus measures expected next year, which could influence demand for the Antipodean currencies.
Mixed Performance Among Other Currencies
- Euro: Steady at $1.0527 as markets anticipate a 25-basis-point rate cut by the European Central Bank on Thursday.
- Sterling: Weakened slightly to $1.2764.
- Swiss Franc: Edged down to 0.8833 per dollar, with a 61% probability of a half-point rate cut by the Swiss National Bank on Thursday.
- Canadian Dollar: The loonie traded near a 4.5-year low at C$1.41645 per U.S. dollar, as the Bank of Canada is expected to announce a 50-basis-point rate cut later in the day.
