Dollar strengthens after higher-than-expected CPI data

14 Feb 2024 , 09:53 AM

Following unexpectedly high U.S. inflation data overnight, traders retracted their bets on a first Federal Reserve interest rate drop, and the dollar closed Wednesday around three-month highs relative to key rivals.

Japan’s top currency diplomat hinted at the possibility of intervention if ‘rapid,’ ‘speculative’ yen falls persist after the U.S. currency moved above 150 yen for the first time since Nov. 17.

According to LSEG’s rate likelihood app, federal funds futures presently price in no rate drop in March and a lower than 50% chance of easing in May. This comes after the consumer price index (CPI) increased 3.1% in January compared to a projected 2.9% rise in the previous year.

Traders will be interested in hearing how Fed speakers this week read the inflation figures, as well as whether Bank of Japan Governor Kazuo Ueda adds his voice to concerns about the negative effects of a weak yen on the economy.

Masato Kanda, Japan’s top currency ambassador, stated on Wednesday that authorities are ‘vigorously monitoring FX movements’ and ‘will take necessary action if necessary.’

‘Recent moves have been rapid,’ he added, adding that they ‘may have an adverse impact on the economy.’He went on, saying that the current yen’s weakening ‘reflects both fundamentals and speculative moves.’

The long-term U.S. Treasury rates, which spiked overnight and reached a new 2-1/2-month high of 4.33% on Wednesday, are often followed by the dollar-yen pair.

Since the year began, the value of the dollar has increased by roughly 10 yen.

The dollar index, which compares the value of the US dollar to six major rival currencies, such as the yen, euro, and sterling, was trading slightly below its three-month high of 104.96 on Tuesday.

The euro was stable at $1.0710 overnight, having fallen as low as $1.07005 three months earlier.

The value of the British pound was barely altered at $1.2594 following a 0.3% decline on Tuesday. Though solid UK economic data indicates the Bank of England would decrease rates more slowly than its major peers, that was still significantly above recent lows.

The Australian dollar, which was last trading at $0.64545, was hovering around a three-month low of $0.6443 that was touched overnight.

The most popular cryptocurrency, bitcoin, recovered its composure after falling as low as $48,325 over night, from about $50,000. It was last trading at $49,560. From a low on January 23 to a top of over two years, reached on Tuesday ahead of the U.S. CPI report, it had risen by nearly 31%.

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