The dollar remained stable on Monday as recent data revealing a persistent increase in U.S. inflation cast doubt on when the Federal Reserve might begin reducing interest rates.
At the same time, the yen stayed close to the crucial 150 per dollar level, prompting attention from officials and keeping markets alert for potential intervention by Japanese authorities.
“In the last few days, the yen has been around the 150 level, leading officials to comment on currency movements and keeping markets watchful for possible intervention by Japanese authorities.”
During early trading on Monday, the yen slightly strengthened to 149.94 per dollar, yet it remains down 6% for the year.
Against the euro, the yen lingered near three-month lows of 161.925.
According to Marc Chandler, chief market strategist at Bannockburn Global Forex, Ministry of Finance officials have hinted at potential intervention by cautioning against rapid currency movements and threatening action, even outside regular hours.
Japan's overall population and working-age population continues to shrink. Protectionism and chronic overvalued $JPY provided powerful incentives for Japan to service foreign demand via build and sell locally rather than exports (like the US).
https://t.co/wMPVAFsYjK
Spoiler: pic.twitter.com/f01RYvdoiy— Marc Chandler (@marcmakingsense) February 18, 2024
Chandler also noted that there seems to be little resistance on the charts to prevent a test of last year’s low around the 152 per dollar level.
With U.S. markets closed on Monday for Presidents’ Day, trading volumes are expected to be low throughout the day.
The dollar index, which gauges the U.S. currency against six major counterparts, started the week slightly lower at 104.14 after recording five consecutive weeks of gains. So far this year, the index has risen by 3%.
Last week’s data revealed higher-than-expected increases in both U.S. producer and consumer prices for January, suggesting persistent inflation and raising the possibility of a delayed start to the Fed’s interest rate cuts.
Traders now anticipate the easing cycle to begin in June instead of March, as projected at the beginning of the year, according to the CME FedWatch tool.
Moreover, the market has scaled back expectations for rate cuts, now forecasting less than 100 basis points of easing compared to the 150 basis points expected earlier.
Analysts at Citi emphasized that last week’s data confirmed the economy hasn’t achieved a soft landing and raised doubts about whether one will occur.
They pointed to declining retail sales and a continuous increase in jobless claims as indicators of economic softening.
“Increasing inflation complicates the Fed’s ability to respond by lowering rates, further raising the likelihood of a recession.”
This week, investors will closely watch the release of minutes from the last Fed meeting scheduled for Wednesday.
Additionally, speeches by several Fed officials, including Christopher Waller and Raphael Bostic, are scheduled.
Christopher Wong, a currency strategist at OCBC, suggested that the market may have largely adjusted to the hawkish stance and anticipates the dollar to consolidate without fresh catalysts.
In other currency movements, the euro rose slightly to $1.0787, while the pound was at $1.2624, boosted by strong UK retail sales data from January, though it didn’t change expectations around the Bank of England’s monetary policy.
The Australian dollar climbed to $0.655, and the New Zealand dollar advanced to $0.614.
