Expectations Of a Dollar Rate Cut Are Dented By Sticky Inflation

(CTN News) – As the yen remained anchored near the psychologically significant 150 per dollar last week, the Federal Reserve’s easing cycle was unsure when to begin.

The Yen has hovered around 150 levels in the last few days, prompting officials to comment and keeping markets on edge.

Early on Monday, the yen strengthened 0.20% to 149.94 per dollar, but remains down 6% for the year. Against the euro, it hovered around three-month lows of 161.925. “Finance warned against rapid moves and threatened action even outside its time zone, said Marc Chandler, chief market strategist at Bannockburn Global Forex.

The charts do not indicate that 152 per dollar will remain a deterrent to a test. There will be low volumes on Monday because US markets are closed for Presidents’ Day.

After five straight weeks of gains, the dollar index, which measures the US currency against six major rivals, started the week down 0.058% at 104.14. Year-to-date, the index is up 3%.

According to data released last week, both US producer and consumer prices rose more than expected in January. This raised the prospect of a delayed rate cut by the Fed.

The CME FedWatch tool shows that traders now expect June to be the starting point of the easing cycle, instead of March.

Compared with 150 basis points of easing expected at the start of the year, the markets have cut two quarter points for this year.

As Citi strategists reported last week, there hasn’t been a soft landing and “we are increasingly convinced that there won’t be one.” Retail sales are declining and jobless claims are increasing, they said.

Moreover, higher inflation makes it even more difficult for the Fed to respond by lowering rates, increasing the odds of a recession.”

Wednesday’s release of the Fed meeting minutes from last month will be of interest to investors this week. This week, several Fed officials will speak, including Christopher Waller and Raphael Bostic.

Currency strategist Christopher Wong at OCBC believes the bulk of the hawkish adjustment has taken place and that the dollar will consolidate without fresh catalysts.

Meanwhile, the euro rose 0.12% to $1.0787, while sterling rose 0.21% to $1.2624.

UK retail sales grew at the fastest pace in nearly three years in January, boosting the pound on Friday, but little changed expectations about the Bank of England’s monetary policy. In this year’s policy statement, the BOE is expected to cut 64 basis points.

Australian dollar rose 0.29% to $0.655, while New Zealand dollar rose 0.34% to $0.614.

SEE ALSO:

Capital One Buys Discover Financial Services, Report Says

Using ASML Tools, China Seeks Military