Dollar retreats after Fed comments; yen steady despite GDP miss

15 Feb 2024 , 10:03 AM

The U.S. dollar held below a three-month high on Thursday, as market players tried to gauge when the Federal Reserve will likely begin cutting interest rates as Fed officials weighed in on Tuesday’s inflation data.

While under fresh pressure this week, the yen stayed off the three-month low reached versus the dollar on Tuesday despite data showing Japan’s economy fell into a recession as it unexpectedly contracted for two straight quarters on weak domestic demand.

The U.S. inflation data pushed back bets on a first Fed rate cut to the middle of the year, after showing the U.S. consumer price index (CPI) gained 3.1% in January on a year-on-year basis.

According to CME’s FedWatch tool, the market is currently pricing in no rate cut in March, compared to 77% bets on rate cuts starting then a month ago. It is anticipated by the markets that the Fed would hold rates at its meeting in May by 60%.

Vice Chair of the Fed for Supervision The Fed, according to Michael Barr, is still optimistic, but the January CPI data indicates that the road back to 2% inflation in the US ‘may be a bumpy one.’

Ahead of the U.S. retail sales data for January, which is expected later on Thursday, the dollar index, which compares the value of the dollar to six other currencies, steadied below a new three-month high of 104.97 hit on Wednesday. The last position was 104.65.

Following a warning from Japan’s top currency officials against ‘rapid’ and speculative yen swings, the yen was up 0.09% against the US dollar at 150.45.

When the yen fell to 32-year lows close to 152 to the dollar in 2022, Japan changed the exchange rate multiple times.

Germany has surpassed Japan as the third-largest economy in the world as a result of the unexpectedly poor performance that was disclosed in its gross domestic product data on Thursday.

In contrast, sterling was last seen trading at $1.2565 ahead of Thursday’s preliminary GDP figures. The UK inflation rate did not jump in January as anticipated, according to data, which caused the pound to fall overnight and may have relieved some pressure on the Bank of England to maintain stable interest rates longer.

At $1.073, the euro was essentially unchanged.

As the total amount invested in bitcoin crossed $1 trillion for the first time since November 2021, the cryptocurrency saw a 0.92% increase to $52,250.00, surpassing its most recent 25-month high of $52,079 reached the day before.

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