Dollar steady as U.S. inflation data casts doubts on Fed’s easing cycle

89

19th February 2024 – (New York) The dollar maintained stability on Monday following last week’s release of U.S. inflation data, which revealed persistent price pressures and raised questions about the timing of the Federal Reserve’s easing cycle. Meanwhile, the yen remained near the psychologically significant level of 150 per dollar.

Over the past few days, the yen has hovered around the 150 level, prompting officials to comment on the currency’s movements and keeping markets alert to the possibility of intervention by Japanese authorities.

At the start of Monday’s trading session, the yen strengthened by 0.20% to 149.94 per dollar. However, it remains down 6% for the year. Against the euro, the yen hovered around three-month lows of 161.925.

Marc Chandler, chief market strategist at Bannockburn Global Forex, noted that Ministry of Finance officials have taken the first step in the intervention escalation ladder by warning against rapid moves and threatening action even outside their time zone. He added that there seems to be little on the charts to deter a test of last year’s low of 152 per dollar level.

With U.S. markets closed on Monday for the Presidents’ Day holiday, trading volumes are expected to be low throughout the day.

The dollar index, which measures the greenback against six major currencies, started the week down 0.058% at 104.14. This comes after five consecutive weeks of gains, with the index up 3% for the year.

Last week’s data indicated that both U.S. producer prices and consumer prices rose more than expected in January. The persistence of inflation has led traders to speculate that the Fed’s rate cuts may be delayed, with the CME FedWatch tool showing June as the likely starting point for the easing cycle, compared to March expectations earlier in the year.

Citi strategists commented that last week’s data confirmed that an economic soft landing has not been achieved and expressed doubts that one will be. Declining retail sales and the ongoing rise in jobless claims all point to a weakening economy, raising the probability of a recession.

Investors will focus on the release of the minutes from the Fed’s previous meeting on Wednesday, as well as speeches by several Fed officials, including Christopher Waller and Raphael Bostic, scheduled for this week.

Looking at other currencies, the euro edged up 0.12% to $1.0787, while the pound reached $1.2624, up 0.21% for the day. The pound received a boost on Friday after data showed that UK retail sales grew at their fastest pace in almost three years in January, although this had little impact on expectations regarding the Bank of England’s monetary policy outlook. Markets still anticipate 64 basis points of cuts from the BOE this year.

The Australian dollar rose by 0.29% to $0.655, while the New Zealand dollar advanced 0.34% to $0.614.