Written by Brigid Riley
TOKYO (Reuters) – Currency markets were calm on Thursday as traders awaited further data from the world’s largest economy for clues on the direction of Federal Reserve policy. The US dollar held its value against major peers.
A better-than-expected U.S. consumer price index (CPI) on Tuesday reignited concerns that inflation could remain high, with market observers predicting the Fed will cut interest rates at its June meeting as previously expected. I ended up reevaluating whether or not to start.
The market still sees a 65% chance of a rate cut in June, according to LSEG’s Interest Rate Probability app, although this is down slightly from 71% at the start of the week. The probability of a rate cut in July is about 83%.
The Fed is widely expected to keep interest rates on hold at next week’s meeting, and all eyes will be on the Fed’s latest economic forecasts.
“Interest rate expectations have changed slightly in response to the data, but ultimately the market has mostly solidified recently with three rate cuts this year,” said Kyle Rodda, senior financial markets analyst at Capital.com. Stated.
“If the Fed takes a more hawkish stance next week, it could reduce the rate to two (rate cuts) and postpone its daily forecast until September,” he said. said it would be a bullish case for the US dollar.
Federal Reserve Chairman Jerome Powell said last week that the U.S. central bank is “not far off” from gaining the confidence it needs to begin easing.
Markets will be scrutinizing U.S. retail sales, the Producer Price Index (PPI) report and unemployment claims later Thursday for further evidence of an economic slowdown.
Ahead of this data, the dollar index against a basket of six currencies rose 0.1% to 102.85.
The dollar rose 0.1% against the yen to 147.89 yen, as the Bank of Japan’s monetary policy meeting held on March 18-19 left the country on the brink of moving away from negative interest rates.
Japan’s central bank is expected to discuss lifting negative interest rates next week if wage negotiations at large companies yield a positive result, sources told Reuters.
Preliminary results of spring wage negotiations are expected to be announced on Friday, but news is already trickling in that some of the country’s largest companies have agreed to fully comply with union demands for higher wages.
Masafumi Yamamoto, chief currency strategist at Mizuho Securities, said the lifting of negative interest rates in March was largely priced into the dollar/yen price, given the extensive media coverage of the Bank of Japan’s thinking ahead of the meeting.
“The market’s focus may be shifting to when the next interest rate hike will be and the possibility of reducing the amount of Japanese government bond purchases,” he said.
On the other hand, if the central bank leaves negative interest rates unchanged next week, Japan’s currency could return to 150 yen to the dollar, Yamamoto added.
Elsewhere, the euro fell 0.05% to $1.0942 ahead of comments from several European Central Bank officials on Thursday.
The pound was almost unchanged at $1.2792. Data on Wednesday showed the UK economy returned to growth in January after entering a shallow recession in late 2023.
In cryptocurrencies, Bitcoin was almost flat at $73,092.00 after hitting an all-time high of $73,678 in the previous session.
Ether fell 0.72% to $3,963.70.
(Reporting by Brigid Riley; Editing by Christopher Cushing)
