Written by Uncle Banerjee
SINGAPORE (Reuters) – The dollar was broadly stable on Monday, while the yen weakened as data showing easing U.S. prices strengthened expectations the Federal Reserve could cut interest rates in June. The dollar was trading at around 152 yen, with traders wary of the threat of intervention.
The personal consumption expenditure (PCE) price index rose 0.3% in February, the Commerce Department’s Bureau of Economic Analysis said on Friday, compared with a 0.4% rise expected by economists polled by Reuters.
The report also showed that personal consumption spending last month rose by the most in more than a year, underscoring the economy’s resilience. Most markets around the world were closed on Friday.
Federal Reserve Chairman Jerome Powell on Friday said the latest U.S. inflation data was “in line with what we expect,” in comments that echoed his own after last month’s Fed policy meeting. “There is,” he said.
Markets are currently pricing in a 68.5% chance that the Fed will cut interest rates in June, up from 57% at the end of last week, according to the CME FedWatch tool. Traders are also pricing in a 75 basis point (bp) rate cut this year.
Citi strategists said the Fed remains on track to begin cutting interest rates in June. “If economic activity is sustained, the Fed could cut rates three times this year. However, as the labor market continues to soften, we expect five cuts this year.”
The euro rose 0.06% to $1.07945, hovering around $1.0769, its lowest level in more than a month hit last week. On the day, the pound gained 0.12% to $1.2637.
The dollar index, which measures the value of the U.S. currency against six rival currencies, fell 0.038% to 104.42, but remained close to last week’s six-week high of 104.73.
Currency markets are focusing on the yen as it strengthens towards levels last seen in 1990 and the threat of intervention by Japanese authorities rises again.
The yen hit a 34-year low of 151.975 yen against the dollar on Wednesday, and last appreciated against the dollar at 151.315 yen on Monday.
Japan intervened in foreign exchange markets in 2022, first in September and then again in October, as the yen fell toward a 32-year low of 152 yen to the dollar.
Japan’s plans for the yen remain difficult to predict. Since the fiscal year has ended, the Bank of Japan does not need to worry about sudden fluctuations in the yen affecting its balance sheet.
But news of last week’s emergency meeting between the three financial authorities – the Ministry of Finance (MOF), the Bank of Japan and the Financial Services Agency – and the jaw-dropping attitude of officials appears to have had the effect of bringing the yen back from its 34-year low.
Finance Minister Shunichi Suzuki on Monday reiterated his warning against sudden movements in the yen, saying he was not ruling out options for excessive currency fluctuations and would respond appropriately.
Citi analysts still expect Japanese authorities to intervene at somewhere between 152 and 155 yen to the dollar, noting that the yen has also weakened against the Chinese yuan.
“While we do not expect the Treasury to intervene in the renminbi, further appreciation in this currency pair could be one factor prompting foreign exchange intervention by Japan,” they said in a client note on Friday.
Among other currencies, the Australian dollar rose 0.21% to $0.654, and the New Zealand dollar rose 0.20% to $0.599.
Among cryptocurrencies, Bitcoin was last up 1.83% to $70,927.00. Ether was last up 3.46% at $3,619.20.
(Reporting by Uncle Banerjee in Singapore; Editing by Christopher Cushing)
