Dollar in Holding Pattern: Brace for Inflation Data Blitz

8 Jan 2024 , 09:37 AM

In anticipation of a crucial U.S. inflation report later this week that could provide additional insight into the Federal Reserve’s monetary policy stance, the dollar remained stable on Monday. The market had a shaky start to the year as rate-cut expectations were reduced.

A broad dollar rally put pressure on the yen, which was struggling near the 145 per dollar mark. Meanwhile, the Australian and New Zealand dollars were nursing losses after falling substantially last week due to cautious risk sentiment.

Asia’s trade decreased because Japan was on vacation.

The dollar strengthened its gain from last week, when it surged 2.6% against the Japanese currency, to 144.67, its highest weekly performance since June 2022.

The kiwi fell 1.2% last week before rising 0.1% to $0.6248. At 102.38, the dollar index remained stable.

The increase in U.S. Treasury yields supported the greenback’s advance as traders reduced their expectations for the number and speed of Fed cuts this year.

These opinions could be changed once again by the Thursday report on U.S. inflation, since statistics released on Friday indicated that U.S. firms increased hiring in December despite forecasts, rising pay at a steady pace and indicating a strong labour market.

A different survey released that same day revealed, however, that the U.S. services sector slowed down significantly last month, with a measure of employment falling to the lowest level in almost three and a half years. These results painted a mixed image of the largest economy in the world.

According to the CME FedWatch Tool, market pricing now indicates a roughly 64% possibility that the Fed could start easing rates as early as March, down from a nearly 90% chance one week ago.

In other news, the euro increased by 0.08% to $1.0948 after falling by 0.9% the previous week, while sterling added 0.02% to $1.2721.

After falling 1.5% the previous week, the Australian dollar recovered some of its losses, rising 0.1% to $0.6721.

Later this week, there is also an Australian inflation reading that is due.

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