The US Dollar climbed to a 10-week high against the Yen on Thursday as market confidence increased regarding the Federal Reserve's cautious approach to future monetary easing, despite the anticipation of a major inflation report later in the day.
The Dollar index, measuring the currency against six peers, remained near the nearly two-month high reached overnight. Traders reduced expectations for US rate cuts this year following last week's surprisingly strong employment data.
The Euro was close to its lowest level against the Dollar since 13th August at the time of writing.
Economists surveyed by Reuters expect September's consumer price index (CPI), set to be released at 12:30 GMT, to indicate that core US inflation remains steady at 3.2% year-on-year.
The “US exceptionalism trade” has been revived due to the recent string of strong employment data, according to Kyle Rodda, senior financial markets analyst at Capital.com.
The minutes from the Federal Reserve's latest meeting, released overnight, reaffirmed the central bank's commitment to maintaining a robust labour market.
“The US Dollar is regaining supremacy … mostly because of continued US economic outperformance,” Rodda said.
In addition, “an upside surprise in US CPI could force the Fed to doubt its confidence about the path for inflation.”
San Francisco Fed President Mary Daly stated late on Wednesday that she is now less worried about rising inflation and more focused on avoiding harm to the labour market, Reuters reports.
According to the CME Group's FedWatch Tool, traders are placing 85% odds on the Fed reducing rates by 25 basis points at its upcoming policy meeting on 7th November, with a 15% chance of no change.
A week ago, the likelihood of a quarter-point rate cut was at 65%, with a 35% chance of a half-point reduction.
At the time of writing, the Dollar index remained steady at 102.89, just below Wednesday’s peak of 102.93, a level not reached since 16th August.
The greenback inched up to 149.40 Yen, having earlier reached 149.54 Yen, its highest level since 2nd August. Whilst the Euro remained steady at $1.0940 after slipping to $1.0936 in the prior session.