USD moves up, whilst Yen and Sterling decline

14 May 2024

The Dollar moved up on Tuesday ahead of US inflation data, whilst the Japanese Yen remained close to a two-week low and Sterling declined following remarks from Bank of England Chief Economist Huw Pill, indicating there could be sufficient confidence over the summer to warrant considering rate cuts.

Traders are awaiting the US consumer price index (CPI), which is due out on Wednesday, in order to assess the direction the Federal Reserve may take this year, in light of recent softer-than-expected US labour market data and comments from officials suggesting the central bank will unlikely raise rates further.

Money markets have pared back their forecasts of Fed rate cuts in 2024 as a result of sticky inflation. As it stands, they are pricing in around 40 basis points of cuts this year, compared to 150 at the start of the year. 

Additionally, they are pricing in a 50% chance of a first rate cut in September, according to the CME FedWatch tool. 

In a recent poll carried out by Reuters news agency, almost two-thirds of economists anticipate the Fed to lower its key interest rate twice this year, beginning in September. This represents an increase from just over half of economists in the previous survey. 

“US 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 weak US data recently, increasing its rate cut expectations somewhat,” according to Antje Praefcke, FX analyst at Commerzbank.

The Dollar index, measuring the greenback against six peers, was up 0.17% at the time of writing to 105.37. So far this month the index has declined almost 1%, Reuters reports.

The Japanese Yen was down 0.14% at 156.46 per US Dollar. Japan's Ministry of Finance is thought to have intervened in the currency market last month, as the Yen plummeted to a 34-year low of 160.245 on 29th April.

Elsewhere, Sterling fell 0.37% to $1.2513 whilst the Euro edged down 0.1% to $1.0777, yet remains 1% up on the Dollar so far in May.