Ankur Banerjee
SINGAPORE (Reuters) – The dollar remained broadly stable on Monday as data showing softer U.S. prices bolstered bets the Federal Reserve could cut interest rates in June, while the yen hovered around 152 per dollar, holding traders are on edge due to the threat of intervention.
The price index for personal consumption expenditures (PCE) rose 0.3% in February, the Commerce Department’s Bureau of Economic Analysis said on Friday, compared with a 0.4% rise that economists polled by Reuters had forecast.
The report also showed that consumer spending rose the most in a year last month, underscoring the strength of the economy. Most markets around the world were closed on Friday.
Federal Reserve Chairman Jerome Powell on Friday said the latest U.S. inflation data was “in line with what we would like to see,” in comments that matched his remarks after the Fed’s policy meeting last month.
Markets now price the likelihood of a Fed rate cut in June at 68.5%, up from a 57% chance late last week, CME’s FedWatch tool showed. Traders are also forecasting a 75 basis point cut this year.
Citi strategists said the Fed continues to cut rates in June. “If activity continues, the Fed could make three rate cuts this year. But further softening in labor markets leads us to expect five rate cuts this year.”
The euro rose 0.06% to $1.07945, hovering near a one-month low of $1.0769 hit last week. Sterling traded at $1.2637, up 0.12% on the day.
The index, which measures the U.S. currency against six peers, was down 0.038% at 104.42 but remained close to the six-week high of 104.73 it hit last week.
The yen is in focus in the foreign exchange market as its move towards levels last seen in 1990 revives the threat of Japanese intervention.
The yen hit a 34-year low against the dollar at 151.975 on Wednesday and was last at 151.315 per dollar, slightly higher, on Monday.
Japan intervened in the foreign exchange market in 2022, first in September and then in October, when the yen fell to a 32-year low of 152 per dollar.
Japan’s plans for the yen remain difficult to predict. The fiscal year is over, meaning the BOJ doesn’t have to worry about a sudden move in the yen affecting balance sheets.
But news of last week’s emergency meeting of three monetary authorities – the Ministry of Finance (MoF), the Bank of Japan and the Financial Services Agency – and attacks from officials appeared to have helped bring the yen back from 34-year lows.
Finance Minister Shunichi Suzuki said on Monday he was not ruling out options against excessive currency movements and would respond accordingly, repeating his warning about the yen’s rapid movements.
Citi analysts still expect Japanese authorities to intervene somewhere in the 152-155 per dollar zone, noting that the yen has also weakened against the dollar.
“We do not expect the Ministry of Finance to intervene in the yuan, but further growth in the currency pair could be one of the factors stimulating foreign exchange intervention by Japan,” it said in a note to clients on Friday.
In other currencies, the Australian dollar was up 0.21% at $0.654 and the New Zealand dollar was up 0.20% at $0.599.
In cryptocurrencies, Bitcoin was last up 1.83% at $70,927.00. Ether was last up 3.46% at $3,619.20.