By Brigid Riley
TOKYO (Reuters) -The dollar consolidated against major peers on Monday as market participants waited for U.S. inflation data to assess the prospects for rate cuts this year.
After a softer-than-expected US payrolls report for April and the Federal Reserve’s apparently dovish policy announcement earlier this month, expectations for rate cuts this year have increased.
Markets have priced in a 61.2% chance that there will be some degree of rate cutting at the Fed’s September meeting, with a total of about 50 basis points of cuts expected, according to CME’s FedWatch Tool.
But comments from Fed officials last week were varied as speakers debated whether interest rates were high enough. A jump in consumer inflation expectations, revealed by a survey on Friday, could further complicate the conversation.
With recent data suggesting the economy is slowing, investors are looking to confirm how persistent inflation is.
The market will get a chance this week, with inflation figures in the form of the Producer Price Index (PPI) on Tuesday, followed by the Consumer Price Index (CPI) on Wednesday.
“For the wheels to really fall off the US dollar, the incoming data must point to disinflation, not just weaknesses here and there,” said Matt Simpson, senior market analyst at City Index.
“If inflation numbers come back higher this month, it will certainly undo the work of softer growth and slightly weaker employment numbers.”
The , which measures the dollar against a basket of currencies, was flat at 105.31 after posting its first weekly gain last week after two straight weeks of decline.
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This week’s CPI will be crucial to the Federal Open Market Committee’s (FOMC) decision to begin easing interest rates in September, says Carol Kong, currency strategist at the Commonwealth Bank of Australia (OTC:).
“If we get a strong CPI this week, the FOMC will be left with four more monthly CPI reports before the September meeting. I don’t think four benign CPI readings will give the FOMC enough confidence to start cutting in September the interest.”
Fed Chairman Jerome Powell will appear at a meeting of the Foreign Bankers’ Association in Amsterdam on Tuesday.
INTERVENTION FORCES
As markets look ahead to the US CPI this week, the yen won’t be far from traders’ minds amid continued risk of currency intervention by Japanese authorities.
Against the yen, the dollar remained solid at 155.80, after reaching its highest level since May 2 at 155.965.
The dollar has risen against the yen after falling 3% at the start of the month, the steepest weekly percentage decline since early December 2022, following two suspected interventions.
These spikes in the yen’s strength appear to have spooked some yen bears, at least for now.
Yen futures data from the CFTC shows non-commercial short positions fell sharply from 179,919 contracts on April 23, the highest since June 2007.
The currency received some support on Monday after the Bank of Japan sent an aggressive signal by cutting its bid for a segment of Japanese government bonds in the Asian morning.
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The euro was little changed at $1.07695 as the euro zone prepares for its own inflation reading on Friday.
The pound sterling was steady at $1.2522.
China’s stock fell 0.1% to 7.2414, falling to its lowest since April 30 at 7.2385 as traders awaited an announcement from the United States on new Chinese tariffs.
At the same time, China’s central bank said this weekend that new bank loans fell more than expected in April and broad credit growth hit a record low.
Separate data on Saturday showed Chinese consumer prices rose in April, while producer prices continued their decline.
The central bank promised to support the economic recovery.
In cryptocurrencies, bitcoin last rose 0.68% to $60,889.51.
