The dollar index consolidated below a fresh three-month high of 104.97 reached on Wednesday, ahead of U.S. retail sales in January due later on Thursday
The U.S. dollar held below a three-month high on Thursday, as market players tried to assess when the Fed will likely begin trimming interest rates as Fed officials weighed in on Tuesday’s inflation data.
While under renewed pressure this week, the yen kept off the three-month low hit against the dollar on Tuesday despite data showing Japan’s economy slid into a recession as it unexpectedly declined for two successive quarters on weak domestic demand.
The U.S. inflation data lowered bets on a first Fed rate cut to the middle of the year, after showing the U.S. CPI added 3.1% in January on a year-on-year basis, compared with an expected 2.9% increase.
The market is currently pricing in no rate cut in March compared to 77% bets on rate cuts starting then a month ago, per CME’s FedWatch tool. Markets see a 60% probability the Fed will also hold rates at its May meeting.
The upside surprises should serve as a reminder that the Fed does not expect the path back to inflation to be easy, said Matt Simpson, senior market analyst at City Index.
Chicago Fed President Austan Goolsbee said on Wednesday the Fed’s path toward trimming will still be on track even if price increases run a bit hotter-than-expected over the next few months.
The dollar index consolidated below a fresh three-month high of 104.97 reached on Wednesday, ahead of U.S. retail sales in January due later on Thursday. It last stood at 104.65.
The yen was 0.09% higher versus the dollar at 150.45 after Japan’s top currency officials cautioned against “rapid” and speculative yen moves.
