Dollar holds steady ahead of US inflation data

12 Feb 2024

The dollar held steady on Monday as the focus turned to US inflation data for indications as to when the Federal Reserve may begin to lower rates.

Robust jobs data earlier in February has mostly ruled out the possibility of a Federal Reserve interest rate reduction in March. Instead, the current market sentiment suggests that a rate cut in May is more probable than not.

Analysts forecast US core consumer price inflation to stand at 0.3% month-on-month in January and 3.8% year-on-year.

Fed policymakers have stated they require further evidence that inflation will remain near the 2% target before contemplating a rate cut, according to Commonwealth Bank of Australia currency strategist Carol Kong.

“Persistently near-target inflation and/or a weakening labour market would give (them) that evidence,” she stated, going on to add that the data out on Tuesday would likely be insufficient to lead to a major Dollar decline.

Elsewhere, the Euro edged down to $1.0778, moving away from a 10-day high reached in early trading. A reading on eurozone Q4 economic growth due to be published on Wednesday could lead to a shift in direction, Reuters reports.

In the UK, Sterling was flat at $1.2632. This is ahead of British CPI inflation, which is due out on Wednesday and may also influence when the Bank of England will begin slashing rates.

In Japan, the Yen increased slightly to 149.04 per dollar, as moves were limited ahead of the release of the US CPI data. According to Japanese Finance Minister Shunichi Suzuki, authorities were keeping a close eye on FX moves.

“Dollar/Yen is likely to be driven mainly by US developments in the near future, but intervention warnings are likely to increase in frequency around the 150 level,” stated Barclays analysts.

At the end of 2022, Japanese authorities intervened to boost the Yen, which had weakened to 151.94 per dollar.