TOKYO- The currency market was sedate on Thursday, with the US dollar consolidating against major peers as traders awaited more data out of the world’s largest economy for clues on the direction of Federal Reserve policy.
Tuesday’s hotter-than-expected US consumer price index (CPI) has re-ignited concern that inflation could remain sticky, leaving market players to reassess if the Fed will start cutting interest rates at its June meeting as previously expected.
Markets still see a 65 percent chance of a rate cut in June, though that has edged down from 71 percent earlier in the week, showed LSEG’s rate probability app. The likelihood of a July rate cut sits around 83 percent .
With the Fed widely expected to hold rates steady at its meeting next week, attention will be on the bank’s updated economic projections.
“The data is driving marginal changes in rate expectations, but ultimately, the markets have been pretty settled recently on three cuts this year,” said Kyle Rodda, senior financial market analyst at Capital.com.
“A more hawkish Fed next week could lower that to two (rate cuts) and defer expectations for the first to September,” which would essentially be a bull case for the US dollar, he said.
Fed Chair Jerome Powell said last week the US central bank was “not far” from gaining the confidence needed to begin easing.
Markets will scrutinize US retail sales data, the producer prices index (PPI) report and jobless claims due later on Thursday for more evidence of the economy slowing down.
Ahead of the data, the dollar index which measures the greenback against a basket of six currencies, was last up 0.1 percent at 102.85.
Against the yen, the dollar edged 0.1 percent higher to 147.89 yen as an exit from negative rates at the Bank of Japan’s monetary policy meeting on March 18-19 continues to be a close call.
