Dollar awaits CPI while the yen returns gains

12 Dec 2023 , 09:14 AM

While the dollar was awaiting U.S. inflation data and a number of central bank meetings, the yen nursed losses on Tuesday as traders reduced expectations for a rate hike by Japan.

Overnight, the yen had a 0.9% increase against the dollar. The value of the yen is currently 3% higher at 145.96 than it was a week ago, when Bank of Japan Governor Kazuo Ueda’s comments on the difficult outlook were interpreted as a sign that a change in policy was likely to happen.

A reversal of the yen’s surge and gains in Japan’s stock and government bond markets were signalled by Bloomberg’s report on Monday, which was based on sources and stated that BOJ officials did not see the need to quickly exit negative rates.

With the exception of the euro, which remained mostly stable at $1.0765, the market’s attention is now focused on the U.S. inflation data, and the Federal Reserve’s policy decision on Wednesday.

At $1.2555, sterling maintained steady. Tuesday marked the 40th anniversary of the Australian dollar’s flotation at $0.6564, while the New Zealand dollar was maintained at $0.6122.

Since the benign U.S. inflation report in October, the dollar has been declining; however, positive jobs data released on Friday gave the currency some support. The emphasis will be on Chair Jerome Powell’s press conference and the so-called dot plots for rates, as it is expected that the Fed will maintain rates at 5.25%–5.50% this week.

The likelihood of a March cut has decreased, but May is still thought to have a better than 3/4 chance.

According to Reuters polled economists, core inflation will remain stable at a 4% annual pace, significantly higher than the Fed’s 2% objective, while headline inflation is expected to have been flat for November.

Then, on Thursday, the Bank of England, the European Central Bank, the Bank of Norway, and the Swiss National Bank will all meet; only Norway is thought to be a potential hiker. The SNB may decide to reduce its support for the franc in foreign exchange markets.

Last week, the franc reached an almost nine-year high against the euro. On Tuesday, it was somewhat weaker, trading at 0.9455 francs to the euro.

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