Updated February 14th, 2024 at 07:21 IST

Strong CPI data dampens expectations for Fed rate cuts, boosts dollar

Market indicators now indicate no rate cut by the Fed in March, with less than a 50 per cent likelihood of easing in May.

Reported by: Business Desk
Dollar | Image:Pixabay
Advertisement

Dollar in focus: The Dollar retained its supremacy against major currencies on Wednesday, nearing three-month highs as traders adjusted their expectations for Federal Reserve interest rate cuts following unexpectedly high US inflation figures.

The US currency's ascent above 150 yen, a milestone not seen since November 17, prompted Japan's top currency official to suggest potential intervention if the yen's decline persisted at a rapid and speculative pace.

Advertisement

Market indicators now indicate no rate cut by the Fed in March, with less than a 50 per cent likelihood of easing in May. This shift follows January's consumer price index (CPI) report, which revealed a 3.1 per cent year-on-year increase, surpassing the anticipated 2.9 per cent rise.

James Kniveton, senior corporate FX dealer at Convera, noted that the latest inflation data challenges the Fed's stance of waiting for sustained low inflation before adjusting rates. The current dynamic between Fed expectations and potential Japanese intervention remains uncertain.

Advertisement

Traders are monitoring statements from Bank of Japan Governor Kazuo Ueda regarding the yen's weakening impact on the economy. Additionally, they await interpretations from Fed speakers on the inflation data.

Masato Kanda, Japan's top currency diplomat, stressed the urgency of monitoring FX movements and hinted at possible interventions to mitigate adverse effects on the economy, attributing recent yen weakness to both fundamentals and speculative activities.

Advertisement

The Dollar-yen pair closely follows long-term US Treasury yields, which surged overnight to a 2-1/2-month high of 4.33 per cent on Wednesday. Since the beginning of the year, the Dollar has gained roughly 10 yen in value.

Meanwhile, the Dollar index, gauging the US currency against six major counterparts, hovered below Tuesday's three-month peak of 104.96. 

Advertisement

The euro stabilised at $1.0710, while the British pound remained steady at $1.2594, supported by robust UK economic data suggesting a slower rate cut by the Bank of England compared to other major central banks.

The Australian Dollar traded near a three-month low of $0.6443, and bitcoin, after briefly dipping from $50,000 to $48,325, rebounded to $49,560. 

Advertisement

Craig Erlam, senior market analyst at OANDA, believes that while the US inflation report briefly impacted bitcoin's performance, it is unlikely to dampen the mood in the cryptocurrency space.

(With Reuters Inputs)

Advertisement

Published February 14th, 2024 at 07:21 IST