LONDON (Reuters) – The dollar remained steady on Monday as a holiday in most major Asian markets softened the start of what could be a tense week, with eyes on U.S. inflation data for clues about when the Federal Reserve may start lowering rates. .
The euro eased slightly to $1.0778, breaking a 10-day high hit in early trade after rebounding slightly last week from sustained declines in 2024. Wednesday’s fourth-quarter euro zone economic growth figures could offer fresh direction.
The pound was unchanged at $1.2632, although the Japanese yen strengthened slightly to 149.04 to the dollar as the looming release of U.S. consumer price index data for January on Tuesday capped moves.
Changing expectations about when and how quickly central banks will cut interest rates as inflation falls is currently an important driver of foreign exchange markets.
Strong jobs data earlier this month largely pushed the Federal Reserve’s March rate off the table, and markets are now viewing a May change as more likely than not.
Analysts expect core US consumer price index to be 0.3% month-on-month in January, but still up 3.8% year-on-year.
Carol Kong, currency strategist at the Commonwealth Bank of Australia (OTC:), noted that Fed rate setters say they need more evidence that inflation will remain near its 2% target before considering a cut.
“Sustained near-target inflation and/or a weakening labor market would give (them) that evidence,” she said, adding that Tuesday’s data was unlikely to be enough to cause a significant drop in the dollar.
On Wednesday, UK inflation data will also influence views on when the Bank of England will start cutting interest rates – currently lagging behind the Fed and the European Central Bank.
Markets are also keeping an eye on the highly interest rate-sensitive Japanese yen, which strengthened sharply late last year as markets priced early U.S. rate cuts but has since weakened as the deadline was pushed back.
Japanese Finance Minister Shunichi Suzuki said on Friday that authorities were closely monitoring changes in the foreign exchange market.
“Dollar/yen is likely to be driven largely by developments in the US in the near term, but intervention warnings are likely to increase around the 150 level,” Barclays analysts said in a note.
Japanese authorities intervened at the end of 2022 to support the yen, which had fallen to 151.94 per dollar.