US dollar trades range - bound

9 May 2024 , 10:32 AM

Interest rate difference between Japan and the U.S. helped the dollar recover some ground against the yen on Thursday, but it remained in tight range against most of its peers as traders watched important U.S. inflation data for clues on Federal Reserve policy.

The dollar made a gradual recovery against the Japanese yen after plunging more than 3% last week—its largest weekly percentage decline since early December 2022.

Following the release of the Bank of Japan’s summary of comments from its April meeting, which revealed that many board members felt the need to hike rates and eventually end the bank’s bond purchases, the yen witnessed a modest bounce in the Asian morning.

The market was clearly pessimistic on the currency, thus the move was just temporary.

 

The markets are now placing more bets on two rate cuts this year following the Fed policy meeting last week and the unexpectedly low growth in U.S. employment. However, the ultra-low yields in Japan and the US still differ significantly.

Masato Kanda, Japan’s top currency ambassador, reaffirmed on Thursday that Tokyo is prepared to intervene in the currency market.

Attention shifts to the U.S. Producer Price Index (PPI) for April and the Consumer Price Index (CPI), which are to be released the following week. Market participants will be looking for indications that inflation has started to decline again in the direction of the Federal Reserve’s 2% target rate.

President of the Federal Reserve Bank of Boston Susan Collins stated overnight that a cooling of the US economy is necessary to bring inflation back to target.

The Japanese yen stayed essentially unchanged at 155.59 per US dollar, but the dollar index increased to 105.55, up 0.05% in value.

Ahead of the Bank of England’s policy decision later on Thursday, the value of sterling was down 0.07% at $1.2487.

As inflation declines, the BOE is probably going to move closer to cutting interest rates for the first time in four years.

For investors, the key concern is whether the BOE implies that a reduction in borrowing prices could occur in June, a month when the European Central Bank has already said it will do so.
The euro stayed at $1.0743 unchanged.

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