Ahead of a busy week full of important data announcements that may offer more hints about the outlook for interest rates worldwide, the dollar remained strong on Monday. The U.S. inflation reading will likely take center stage.
The preferred inflation indicator used by the Federal Reserve, the core personal consumption expenditures price index (PCEPI), is expected to rise by 0.4% every month when released on Thursday.
Along with a rate decision from the Reserve Bank of New Zealand (RBNZ) and PMI readings in China, this week’s data schedule also includes inflation statistics for the eurozone, Japan, and Australia.
Prior to the announcement, the euro dropped 0.04% to $1.0817 and the New Zealand dollar dropped 0.55% to $0.6164 as the US dollar moved generally higher in early Asia trading.
Due to the general decline in the value of the dollar and the possibility of an RBNZ rate hike on Wednesday, the Kiwi gained 1.2% last week. Although most analysts anticipate that the central bank will maintain current rates, futures indicate that there is a roughly 30% possibility of a 25 basis point hike.
According to Carol Kong, a currency strategist at the Commonwealth Bank of Australia (CBA), “I think the RBNZ will keep the OCR (official cash rate) unchanged and that will likely cause the kiwi to fall if markets unwind pricing for a near-term rate hike. But any falls in the kiwi will likely be pretty small because we expect the RBNZ to remain pretty hawkish.” The Australian dollar dropped 0.07% to $0.6559, while sterling remained unchanged at $1.2671.
Tuesday’s data on consumer prices throughout the country in Japan is anticipated to reveal that core inflation fell to 1.8% in January, the lowest level since March 2022.
The Bank of Japan’s (BOJ) intentions to stop offering negative interest rates in the upcoming months would be complicated by that, which would keep the yen weaker in the short run.
The large differences in interest rates between the US and Japan have caused the Japanese yen to decline more than 6% versus the US dollar this year. As of right now, it is only slightly stronger at 150.40 per US dollar.
Head of FX strategy at Rabobank Jane Foley stated, “Since the tail end of last year, the market has been focused on the BOJ’s March or April policy meetings as likely bringing the BOJ’s negative interest rate policy to an end. News that Japan fell into a technical recession in H2 2023 will have dampened some of the market’s enthusiasm regarding the pace of monetary tightening from the BOJ.”
According to the most recent statistics from the U.S. Commodity Futures Trading Commission, short holdings on the yen reached their highest level since November last week, at almost $10 billion.
On the other hand, a string of unexpectedly high U.S. producer and consumer prices in recent weeks has maintained the odds of Thursday’s core PCE price index data skewed higher, which would further delay expectations for a wave of Fed rate cuts this year.
According to the CME FedWatch tool, markets are pricing in only a little over a 20% likelihood that the Fed will start lowering rates in May, down from a 90% chance one month ago.
“If anything, the (data) may be stronger than markets currently expect, and that will likely give a modest boost to the dollar,” said CBA’s Kong. “But at the same time, any gains in the dollar will likely be pretty modest. I don’t think markets will expect another rate hike from the FOMC.”
At 104.01, the dollar index was up 0.04% last time around.
- Published By Team Genuine Reporter