By Ankur Banerjee
SINGAPORE (Reuters) – The dollar was steady on Tuesday as investors waited this week for an inflation report likely to shape the U.S. interest rate outlook, while the yen hovered around a two-week low, fueling concerns about interventions.
The currency market was quiet this week, with investors trying to gauge the path the Federal Reserve will take this year in the wake of recent softer-than-expected US labor market data and comments from central bankers.
They have had to adjust their expectations for rate cuts this year due to persistent inflation and are now pricing in a 42 basis point easing this year, with a 60% chance of a cut in September, according to CME’s FedWatch tool.
All eyes this week will be on Wednesday’s Consumer Price Index, which is expected to show the core CPI rose 0.3% month-on-month in April, up from less than 0.4% on the month for it, according to a Reuters poll.
But before that, the U.S. Producer Price Index will be released later on Tuesday, which analysts will sift through to get a sense of whether inflation is heading toward the Fed’s 2% target.
“The focus will be on key items that contribute to major personal consumption expenditures (PCE), i.e. healthcare services, portfolio management and domestic airfare,” said Tony Sycamore, market analyst at IG.
The euro is little changed at $1.0786 but is up 1% against the dollar so far this month, while sterling last bought $1.2554, up about 0.5% so far in May.
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The , which measures the U.S. currency against six rivals, was last at 105.25.
Nearly two-thirds of economists expect the Fed to cut its key interest rate twice this year, starting in September, a Reuters poll showed. That’s up from just over half of the economists in the previous survey.
YEN CARES
Traders are panicking again as the yen approaches levels at which Tokyo’s suspected interventions took place. It last stood at 156.32 per US dollar, after hitting a two-week low of 156.40 earlier in the session.
Japan’s finance ministry is suspected of intervening in the currency market in late April to early May after the yen hit a 34-year low of 160.245 on April 29.
But the market remains bearish on the currency, given the huge gap between ultra-low interest rates in Japan and those in other major economies.
Japanese Finance Minister Shunichi Suzuki said on Tuesday that the government will work closely with the Bank of Japan on foreign exchange matters to ensure there is no friction between their mutual policy objectives.
“We will take all possible measures to closely monitor the currency,” Suzuki said. He added that it is important that the exchange rate moves in a stable manner, reflecting fundamentals, rather than focusing on its level.
The yen received brief support on Monday when the Bank of Japan sent a hawkish signal by cutting its bid on a segment of Japanese government bonds.
Meanwhile, the International Monetary Fund said Japan’s commitment to allow the yen to move flexibly will help the central bank focus on achieving price stability, warning of growing calls from some analysts to use monetary policy to stem the decline to slow down the currency.
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In other currencies, the Australian dollar and New Zealand dollar were both flat in early trading. The last one yielded $0.6608, compared to $0.6017.
