Dollar remains stable as traders await US inflation data

Dollar price today: On Thursday, the dollar maintained stable positions against most currencies as traders awaited crucial US inflation data for insights into Federal Reserve policy. Meanwhile, the significant interest rate differential between Japan and the US contributed to some gains against the yen.

Against the yen, the dollar showed marginal improvement after experiencing a decline of over 3 per cent last week, its largest weekly drop since December 2022.

The yen briefly strengthened during the Asian session following the release of the Bank of Japan's summary of opinions from its April meeting, which highlighted the inclination of many board members towards rate hikes and eventual reduction of bond purchases. However, the market sentiment remains predominantly bearish on the currency.

Recent developments, including the Fed's policy meeting last week and unexpected weakness in US job growth, have led to heightened expectations of two rate cuts this year. Nonetheless, a substantial gap persists between the ultra-low yields in Japan and those in the United States.

Masafumi Yamamoto, Chief Currency Strategist at Mizuho Securities, noted, "The market is not overly concerned about the Fed's sudden shift. Consequently, the prevailing bias leans towards the dollar gaining against the yen." He anticipates that potential currency intervention by Tokyo could trigger volatile movements as the dollar continues its ascent, likely confining dollar/yen within the 155-160 range.

Japan's top currency diplomat, Masato Kanda, reiterated Tokyo's readiness to take action in the currency market, adding to market apprehensions.

Attention now turns to the release of April's US Producer Price Index (PPI) and Consumer Price Index (CPI) next week, which will provide insights into whether inflation is returning to the Fed's 2 per cent target rate.

Federal Reserve Bank of Boston President Susan Collins highlighted the necessity for the US economy to cool down to bring inflation back to target.

The dollar index rose marginally to 105.55, while the yen remained mostly unchanged at 155.59 per dollar.

Sterling weakened slightly to $1.2487 ahead of the Bank of England's policy decision later in the day. The BOE is expected to take steps towards its first interest rate cut in four years amidst falling inflation rates.

Investors are keen to ascertain whether the BOE hints at a potential rate cut in June, aligning with signals from the European Central Bank regarding borrowing cost reductions.

(With Reuters inputs)