Investing.com – The U.S. dollar fell Monday ahead of the Federal Reserve’s latest meeting, while the yen rose amid speculation that Japanese authorities have intervened to stem the seemingly relentless decline.
At 04:45 ET (08:45 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.2% lower at 105.630, after rising to 106.00 on Thursday.
PCE data points to a late rate cut
The dollar fell to start the new week, but was still up strongly of more than 1% in April as traders have largely priced in expectations of early Fed rate cuts.
Friday’s data on the Fed’s favorite inflation gauge came in warmer than expected for March, suggesting the rate cuts will come much later in the year than expected in early 2024.
The focus this week is now entirely on a meeting, which will conclude on Wednesday. The central bank is expected to keep rates steady and provide a potentially aggressive outlook given the recent persistence of U.S. inflation.
“PCE data has confirmed that inflation remains too high, and last month’s very strong jobs data is likely to prompt a more cautious tone from Chairman Jerome Powell on the prospect of rate cuts,” ING analysts said in a note.
The Fed meeting comes ahead of Friday’s monthly jobs report, which will provide a fresh look at the strength of the U.S. labor market.
Economists expect the economy to have added 243,000 in April, down from 303,000 in March, while growth is expected to remain stable at 3.8%.
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Intervention to support the yen?
Most of the action in the currency market was in Asia on Monday, falling 1.8% to 155.56 after an earlier rise to 160.245.
The sharp nature of this move has led many to look to authorities for intervention, although Japan’s top currency diplomat Masato Kanda declined to comment on whether authorities had intervened.
Forex markets have been tense for weeks amid signs of action from Tokyo to prop up a currency that has fallen to a 34-year low against the dollar, even as the central bank exited negative interest rates last month.
“Although not yet official, there are strong indications that Japan intervened in the currency market this morning after the USD/JPY reached 160.0,” ING added. “If we follow the same script as September 22, 2022, USD/JPY should remain volatile throughout the session before stabilizing around 156-157.”
The euro is trading higher after German inflation data
In Europe, yields rose 0.3% to 1.0722, benefiting from the dollar’s weaker tone, as traders digested a series of European inflation data.
rose 3.3% in April compared to the previous year, a monthly increase of 0.7%, slightly below expectations.
A number of German states also published their April consumer figures, with the most populous state, North Rhine-Westphalia, posting figures that remained slightly above the European Central Bank’s medium-term target of 2/0%.
The ECB plans to cut rates in June, but the outlook remains further clouded by rising energy costs, persistently high services inflation and persistent geopolitical tensions.
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rose 0.3% to 1.2528, benefiting from recent dollar weakness.
“The recent rollercoaster of policy comments from the BoE and a substantially higher US rate reset have left the Sonia curve hanging on the prospect of an August rate cut, but also indicate the market’s reluctance to accept further cuts in praiseworthy,” said ING.
Elsewhere, the index traded broadly flat at 7.2462, rising 0.4% to 0.6558 on speculation that warmer-than-expected inflation in the first quarter will attract more rate hikes from the Reserve Bank of Australia.
