Gertrude Chavez-Dreyfus and Stefano Rebaudo
NEW YORK/MILAN (Reuters) – The dollar was little changed on Tuesday, trading in tight ranges, with investors remaining cautious ahead of U.S. inflation data even as the yen hovered near multi-year lows, keeping traders be prepared for any possible actions on the part of Japan supports its currency.
Economists expect the headline consumer price index (CPI) to rise 0.3 month-on-month, up from 0.4 percent in February, according to a Reuters poll. The core consumer price index is also expected to rise 0.3% in March.
Ahead of Wednesday’s consumer price index data, the U.S. interest rate futures market raised the odds of a June rate cut to 57.6%, up from 49% late Monday, FedWatch CME showed.
For 2024, fed funds futures call for about 65 basis points (bps) of rate cuts, or less than three 25 bps rate cuts. each.
The US dollar ended last week lower as traders digested mixed economic data, including an unexpected slowdown in US services growth and better-than-expected US job growth.
“What interests me is how soft the dollar has been. We were unable to maintain momentum after the good jobs data,” said Mark Chandler, chief market strategist at Bannockburn Global Forex in New York.
He noted that the dollar did not find much support ahead of the consumer price index data and despite adjustments to the interest rate forecast.
“To me, this is a warning that if the dollar doesn’t rise on the back of interest rate forecasts and stronger economic data, something is wrong.”
The index, which tracks the currency against six major peers, was steady at 104.15 in morning trading.
“Following the growth surprises, there is understandable caution about the potential for a weaker outlook, which will quickly see expectations for a rate cut rising again in June,” said Derek Halpenny, head of global markets research at MUFG Bank.
Meanwhile, the Fed continued to send hawkish signals.
Dallas Fed President Lori Logan on Friday argued against a quick easing of monetary policy following the jobs data, and Bank of Chicago President Austan Goolsbee said Monday that the Fed must weigh how long it can maintain its stance on interest rates without causing damage to the economy.
Some analysts believe geopolitical risk could increase demand for safe-haven assets, including the US dollar.
Hopes for a ceasefire in the Gaza Strip have diminished after Hamas said the Israeli proposal received from Qatari and Egyptian mediators did not meet the demands of the Palestinian factions.
In other currencies, the dollar fell 0.1% to 151.715 yen, not far from a 34-year high of 151.975 yen hit last month, as Japanese officials continued to try to boost the currency.
The threat of intervention kept the dollar from breaking through the closely watched 152 yen level.
“While a break above 152.00 may not prompt FX intervention immediately, we see a strong likelihood that the Ministry of Finance (MoF) will take action to prevent a move towards 155.00,” said Jane Foley, senior FX strategist at RaboBank.
“Strong US inflation data and weak Japanese economic performance will increase the risk that the Treasury will be forced to take action,” he added.
Also on Tuesday, Bank of Japan Governor Kazuo Ueda said the central bank should consider reducing monetary stimulus if inflation accelerates.
The euro was flat, down slightly at $1.0854, while sterling traded at $1.2669, up 0.1% on the day.
Investors are also looking ahead to the European Central Bank meeting on Thursday. Analysts expect the ECB to keep rates this week, but repeating its decisions will depend on data.