Karen Brettell and Alan John
NEW YORK (Reuters) – The dollar strengthened against the euro on Thursday ahead of key U.S. inflation data on Friday and as investors cleared month-end and quarter-end positions.
The Japanese currency also weakened slightly to 151.38 per dollar, trading just below 152 on Wednesday, its weakest since 1990, before Japan’s top monetary officials said they were ready to intervene to prevent further declines.
The main economic focus this week in the US is Personal Consumer Expenditures (PCE) data, due on Friday following higher-than-expected consumer and price inflation data for January and February.
Traders will be looking for more clues about whether the Federal Reserve will continue cutting rates as early as June as inflation remains low and economic growth remains strong.
Helen Given, a currency trader at Monex USA, said higher-than-expected inflation is unlikely to last this year, which should support the Fed’s pace of three 25 basis point cuts this year.
The dollar rose earlier on Thursday after Fed Chairman Christopher Waller’s comments late Wednesday that recent disappointing inflation data bolstered the case for the U.S. central bank holding off on cutting its short-term interest rate target.
But Given said the move was “a little excessive, and I think it really has to do with the fact that there are very small flows in the world.”
US Treasuries and stock markets will be closed for the Good Friday holiday, and foreign exchange markets are likely to be lightly staffed, which could increase volatility.
Fed Chairman Jerome Powell is also scheduled to speak on Friday.
Data on Thursday showed the U.S. economy grew faster than previously expected in the fourth quarter, helped by strong consumer spending and business investment in non-residential structures such as factories.
The euro hit $1.0775, its lowest level in five weeks, and was last down 0.34% at $1.0789. The pound weakened 0.15% to $1.262.
The index rose 0.1% to 104.52 after earlier hitting 104.73, its highest level since mid-February.
Intervention
If Friday’s inflation data turns out to be a surprise and supports the dollar, it could have the strongest impact on the yen. Market participants say there is a thicket of options capping the dollar-yen move around the 152 level, so a breakout could trigger larger moves.
“Once the dollar/yen hits 152, I think there will likely be a sharp move higher and that’s when intervention could happen,” said Takeshi Ishida, currency strategist at Resona Holdings.
Japanese authorities held a meeting on Wednesday to discuss currency weakness and stepped up their verbal warnings, keeping the market closely watching for any signs that words are being backed up by action.
Japanese Prime Minister Fumio Kishida also said on Thursday that the government would not rule out any options to address excessive movements in the foreign exchange market, underscoring Tokyo’s determination to enter the market if it deems the yen’s fall to be excessive.
“Every time Japan’s currency officials talked about it, it had less and less impact on the pricing of the yen,” Given said. “Because of this, we are now seeing a real tangible risk of intervention.”
Japan intervened in the foreign exchange market three times in 2022, selling the dollar to buy the yen, first in September and then in October when the yen fell to a 32-year low of 152 per dollar.
A summary of views at the Bank of Japan’s March meeting released last Thursday offered little support for the currency, showing many policymakers see the need to slowly withdraw from ultra-loose monetary policy.
Meanwhile, China’s central bank set the yuan fixing by its widest gap to Reuters estimates in nearly five months as authorities step up efforts to prevent a sharp fall in the currency. Last Friday the yuan fell to a four-month low. CNY/
The rate remained largely unchanged at 7.2256 per dollar, while in offshore markets it eased to 7.2615 per dollar.
The Australian dollar fell to $0.6486, its lowest level since March 5. Not only did Waller’s statements sting, but data from Australia showed retail sales in February were below economists’ expectations. Australian dollar/
In cryptocurrencies, Bitcoin added 2.91% to $70,848.75.