By Brigid Riley
TOKYO (Reuters) – The foreign exchange market was calm on Thursday. The U.S. dollar consolidated against its major currencies as market participants awaited more data from the world's largest economy for clues on the direction of Federal Reserve policy.
Tuesday's higher-than-expected U.S. consumer price index (CPI) reignited concerns that inflation could remain stubborn, forcing traders to reassess whether the Fed will begin cutting interest rates at its June meeting as expected.
Market participants still see a 65% chance of a rate cut in June, although this is down slightly from the 71% at the start of the week, LSEG's interest rate probability app showed. The probability of a rate cut in July is about 83%.
With the Fed widely expected to keep interest rates steady at its meeting next week, attention will turn to the bank's updated economic forecasts.
“The data is leading to modest changes in rate expectations, but ultimately markets have been fairly committed lately to three rate cuts this year,” said Kyle Rodda, senior financial markets analyst at Capital.com.
“A more hawkish Fed could cut this week to two (rate cuts) next week and push expectations for the first one to September,” which would essentially be a bull case for the U.S. dollar, he said.
The dollar index, which measures the greenback against a basket of six currencies, was broadly unchanged at 102.77.
Markets will closely examine U.S. retail sales, the producer price index (PPI) report and jobless claims due later on Thursday for further evidence of a slowing economy.
Fed Chairman Jerome Powell said last week that the U.S. central bank was “not far” from gaining the confidence needed to begin easing.
Against the yen, the dollar remained at 147.69 yen as an exit from negative interest rates remains on the cards at the Bank of Japan's policy meeting on March 18-19.
Sources told Reuters that Japan's central bank will debate ending negative interest rates next week if major companies' pay talks produce good results.
The story goes on
The preliminary results of the spring wage negotiations are expected on Friday, and news has already leaked that several of the country's largest companies have agreed to fully meet union demands for wage increases.
Elsewhere, the euro was steady against the dollar at $1.0949 ahead of comments from several European Central Bank officials on Thursday.
Sterling was unchanged at $1.2796. Data on Wednesday showed the British economy returned to growth in January after entering a shallow recession in the second half of 2023.
In cryptocurrencies, Bitcoin was last down 0.28% at $72,950.00, after hitting a record high of $73,678 in the previous session.
Ether fell 0.03% to $3,991.00.
(Reporting by Brigid Riley; Editing by Christopher Cushing)
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