Higher Inflation Data Delays Fed Rate Cuts

15 Mar 2024 , 12:48 PM

Concerns about when and how much the Federal Reserve might lower interest rates this year were heightened by hotter-than-expected U.S. inflation data on Friday, which helped to end the dollar’s three-week losing streak.

According to data released on Thursday, the U.S. producer price index for final demand increased by 0.6% in February, surpassing the 0.3% increase predicted by economists. That followed data released on Tuesday, which revealed that consumer prices rose sharply in February for a second consecutive month.

Although the market is not anticipating a change in interest rates, investors will be keenly observing the U.S. central bank’s economic estimates and remarks from Fed Chair Jerome Powell when it meets next week.

According to the CME FedWatch tool, markets are now pricing in a 60% chance of the Fed lowering rates in June, down from 74% a week earlier, as a result of the slew of sticky inflation readings that have caused traders to lower their expectations.

As of right now, traders are pricing in 76 basis points of cuts this year, which is more in line with the Fed’s own December prediction.

The dollar index, which compares the value of the US dollar to six competitors, increased by 0.058% to 103.44 on Thursday following a 0.55% increase on Thursday. For the week, the index is expected to rise by 0.7%, marking its first gain in four weeks.

The sterling fell by 0.10% to $1.2738, while the euro fell by 0.04% to $1.0877.

After rising as much as 10.6 basis points on Thursday, the yield on 10-year Treasury notes decreased by 1.4 basis points to 4.284% during Asian hours.

The Japanese yen was slightly weaker at 148.49 per dollar and is expected to decrease by over 1% per week, which would be its worst weekly decline since January due to traders’ jitters over the Bank of Japan’s potential policy changes.

The BOJ has begun making preparations to terminate its negative interest rate policy at the meeting on March 18–19, according to a report released by the Jiji news agency on Thursday.

The initial findings of Japan’s spring wage discussions are anticipated on Friday; several of the nation’s largest corporations have already consented to raise wages in response to union requests.

Due to traders’ trepidation over possible policy changes from the Bank of Japan, the Japanese yen was marginally weaker at 148.49 per dollar and is predicted to lose by more than 1% each week, which would be its largest weekly decline since January.

The Jiji news agency reported on Thursday that the BOJ has started preparing to end its negative interest rate policy during the meeting on March 18–19.

On Friday, the first results of Japan’s spring salary talks are expected; several of the country’s biggest companies have already agreed to increase wages in response to requests from unions.

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