Dollar Steady as US Inflation Moderates

23 Dec 2024 , 10:20 AM

While the yen hovered around 156 per dollar, suggesting the prospect of intervention, the dollar remained stable on Monday after U.S. inflation data revealed only a slight increase last month, allaying some worries about the pace of U.S. rate cuts next year.

The fact that Congress passed budget legislation early on Saturday, preventing a U.S. government shutdown, further improved investor optimism.

As year-end draws near, trading volumes are probably going to decline during a week with fewer holidays.

Treasury yields and the dollar surged last week as the Federal Reserve stunned the markets by predicting a gradual pace of rate cuts in the future. This had a negative impact on other economies, particularly developing countries.

A measure of underlying inflation had its weakest advance in six months, while Friday’s data on the Fed’s favoured inflation gauge showed modest monthly price increases.
However, core inflation, which does not include food and energy, continued to rise at a rate that was stubbornly higher than the 2% objective set by the U.S. central bank.

The two 25 basis point rate cuts the Fed predicted last week are barely short of the 44 basis point rate reduction that traders are pricing in for next year. In September, it had predicted four cuts. The first easing of 2025 has been postponed until June due to market pricing.

The dollar index, which compares the value of the US dollar to six of its biggest rivals, remained stable at 107.78 on Monday, close to a two-year high of 108.54 that was reached on Friday.

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