Traders are awaiting the U.S. CPI, scheduled for Wednesday, to gauge what path the Fed will take this year in the wake of recent softer-than-expected U.S. labour market data and comments from officials that suggested the central bank was unlikely to hike rates further
The dollar edged higher on Tuesday as traders awaited U.S. inflation data, while the yen stayed near a two-week low, stoking intervention concerns.
The sterling dropped sharply after BoE Chief Economist Huw Pill said it was not unreasonable to believe that over summer there might be enough confidence to consider rate cuts.
Traders are awaiting the U.S. CPI, scheduled for Wednesday, to gauge what path the Fed will take this year in the wake of recent softer-than-expected U.S. labour market data and comments from officials that suggested the central bank was unlikely to hike rates further.
Money markets have pared back their expectations of Fed rate cuts this year due to stubborn inflation and are now pricing in around 40 bps of easing this year, compared with 150 bps of cuts anticipated at the beginning of 2024. They are also pricing in a first rate cut, with a 50% probability, only in September, per the CME FedWatch tool.
U.S. inflation this week is expected to show that core consumer prices increased 0.3% month-on-month in April, down from a 0.4% growth the prior month, according to a Reuters poll.
But before that, U.S. PPI data is due to be released later on Tuesday, which analysts will parse through to get a sense of whether inflation is heading towards the Federal Reserve’s target of 2%.
U.S. inflation data for April is likely to be the most important data point of the week, especially after the market has reacted sensibly on rather soft U.S. data recently, increasing its rate cut expectations somewhat, according to Antje Praefcke, FX analyst at Commerzbank.
Meanwhile, the dollar index, which measures the U.S. currency against six peers, was up 0.17% at 105.37. The index has slid around 1% in May.
Traders are also closely watching the yen, down to May 1 levels, which then saw suspected interventions by Japanese authorities. It was down 0.14% at 156.46 per U.S. dollar.
