Karen Brettell
NEW YORK (Reuters) – The dollar rose in choppy trade on Thursday and was on track for a second straight monthly gain against the euro and the yen, reversing an earlier fall after data showed U.S. inflation was the same in January , as expected.
The yen rose after a policymaker hinted at a move away from ultra-loose policies, while bitcoin held near a more than two-year high hit on Wednesday.
The dollar fell earlier on Thursday after data showed U.S. price growth in January was the smallest in nearly three years, allowing the Federal Reserve to cut its June interest rate.
“This seal has largely quelled the market’s worst fears,” said Carl Sciamotta, chief market strategist at Corpay in Toronto. “The big issue here was that the CPI really put the fear of God into a lot of traders – there was a lot of fear that the underlying pressure might be stronger than expected.”
It hit a three-month high after the consumer price index (CPI), released on February 13, showed prices rose more than expected in January.
However, the dollar’s fall on Thursday was short-lived and the dollar soon recovered.
Sean Osborne, chief currency strategist at Scotiabank in Toronto, noted that “there’s very little confidence behind some of the trading we’re seeing in the forex market at the moment” and that “the dollar looks pretty fully valued for the fundamentals.” what we have now.”
Some of Thursday’s changes were also likely due to portfolio rebalancing at the end of the month.
Traders are closely watching economic data to see when the Fed is likely to cut rates.
Many analysts expect the US economy to slow in the coming months, while inflation is likely to continue falling closer to the US central bank’s annual target of 2%. This will prompt the Fed to begin easing policy and lower the dollar.
“Signs point to a cooling in many U.S. economic data, and this could harm U.S. exclusivity trade and lead to dollar outflows,” Sciamotta said.
Traders put the likelihood that the Fed will cut rates in June at 64%, up from 63% on Wednesday, according to CME (NASDAQ:)’s FedWatch Tool.
Thursday’s data shows the path to inflation returning to 2% will be uneven, Atlanta Fed President Raphael Bostic said Thursday.
Chicago Fed President Austan Goolsbee said he believes last year’s improvement in the supply of goods and labor has paved the way for further declines in U.S. inflation this year.
The dollar index was up 0.22% on the final day at 104.15. It is set at a monthly increase of 0.57%.
The euro fell 0.33% to $1.0800, for a monthly loss of 0.15%.
European data earlier on Thursday showed price pressures in the region had slowed, although there were some pockets of underlying strength.
Cheaper energy prices pushed inflation in Germany down to 2.7% in February. Inflation also slowed in France, although it was slightly higher than expected, and slowed more sharply in Spain.
National inflation data for February is being published by individual euro zone countries ahead of a Europe-wide release scheduled for Friday, which is expected to show overall inflation slowing to 2.5% year-on-year in February from 2.8% in January.
The yen jumped after Bank of Japan board member Hajime Takata said he believed there was finally a prospect of meeting the 2% inflation target, paving the way for an end to negative rates and yield caps.
“Takata’s remarks should bolster confidence that an earlier-than-expected rate hike at the March meeting should not be ruled out,” said Christopher Wong, currency strategist at OCBC.
The yen on Wednesday edged closer to the 150.88 level reached on February 13, which was its weakest since November 16. The US dollar was last down 0.48% against the Japanese currency at 149.96 yen. The dollar is heading for a monthly gain of 2.07% against the yen.
The yen remains a popular funding currency in carry trades, in which traders sell or borrow Japanese currency and invest in higher-yielding currencies.
In cryptocurrencies, Bitcoin was last up 1.7% on the day at $61,853, holding just below the more than two-year high of $63,933 hit on Wednesday. Monthly growth is expected to be 45%.