Dollar holds ground as inflation fails to stir traders
The US dollar maintained its stability against various other currencies on Wednesday as traders evaluated how the unexpectedly high inflation data could impact the probability of a rate cut at the Federal Reserve’s June meeting, Reuters reported.
In February, the US Consumer Price Index (CPI) saw a significant increase, surpassing predictions and indicating potential inflation persistence. The CPI rose by 0.4 per cent in February, as expected, but the year-on-year gain of 3.2 per cent slightly exceeded the anticipated 3.1 per cent increase.
This has led analysts to question if the Federal Reserve will have enough data to justify multiple rates cuts this year.
Despite this, the market’s expectations for rate cuts to start at the Fed’s June meeting have only slightly decreased to a 67 per cent probability, compared to 71 per cent earlier in the week, according to the CME Group’s FedWatch Tool.
Some believe that Fed Chair Jerome Powell may now regret mentioning cuts in his testimony last week, as it could explain why Fed Fund futures are still pricing in a June cut.
The US dollar remained stable against a basket of currencies, with the dollar index at 102.93. The focus now shifts to US retail sales, an indicator of consumer spending, and producer prices due later this week.
Against the yen, the dollar was mostly unchanged at 147.60, following the yen’s largest drop in a month on Tuesday after a somewhat pessimistic evaluation of Japan’s economy by Bank of Japan Governor Kazuo Ueda.
Traders are now awaiting the initial estimates of spring wage negotiations due on Friday, which will be crucial for the Bank of Japan’s policy decisions on whether to exit negative interest rates at its March 18–19 meeting.
Expectations are high for substantial pay raises, with several of Japan’s largest companies already agreeing to meet union demands for pay increases at annual wage negotiations.
The yen rose to as high as 147.24 per dollar following the wage news on Wednesday before settling down in the Asian afternoon.
Japan’s largest trade union confederation has demanded a pay rise of 5.85 per cent this year, exceeding 5 per cent for the first time in 30 years. The sterling remained steady at $1.2787, as did the euro at $1.0925.
Analysts are expecting the European Central Bank to announce the results of discussions on the Eurosystem’s operational framework review on Wednesday, which has kept rates at zero or lower and provided banks with cash through bond purchases and loans.
In other currencies, the Australian dollar rose 0.09 per cent against the greenback to $0.661, and the kiwi rose 0.16 per cent to $0.616. In the cryptocurrency market, bitcoin increased by 1.49 per cent to $72,129.84, still below the record high set on Monday, while ether was up 2.21 per cent to $4,038.39.
