Greenback Breathless Before CPI, Yen Feels the Drag

11 Jan 2024 , 09:31 AM

Sluggish Japanese wages dragged on the yen on Thursday, as traders becalmed the dollar as they awaited U.S. inflation data to determine whether rate-cut bets were warranted.

In response to statistics indicating that workers’ real wages decreased for a 20th consecutive month in November—confounding officials’ hopes for wage rises prior to tightening policy—the yen dropped 0.9% against the dollar overnight and 1.2% against the euro.

In morning trade, the yen was slightly pressured at 145.55 per dollar and fell as low as 159.99 per euro, its lowest level in six weeks. With all eyes on the U.S. data that is expected at 1330 GMT, the euro purchased $1.0974 as other major currencies remained stable against the dollar.

After declining over the last few months of 2023 as the Federal Reserve signalled it was done raising interest rates, traders priced in sharp reductions, and the dollar eventually stabilized in early 2024.

Futures indicate that the market expects 140 basis points (bps) of cuts this year, with a 2/3 chance that they start as early as March. This view may be contested if inflation surprises on the high side. Pricing has somewhat softened.

John Williams, the president of the New York Fed, stated on Wednesday that there is still too much work to be done before calling for rate reductions because inflation is still far from reaching 2%.

December’s core inflation rate is predicted to drop to 3.8% annually, the lowest level since early 2021.

On Thursday, the dollar index remained steady at 102.3. The Australian and New Zealand currencies were confined within recent ranges, and Sterling purchased $1.2750. The Kiwi was trading at $0.6232, while the Aussie was at $0.6707.

After rising more than 50% since October due to expectations that exchange-traded funds (ETFs) holding bitcoin would be approved in the United States, the price of bitcoin fluctuated a lot but finally remained relatively stable at $46,600 after the U.S. securities commission gave its clearance.

In addition to the U.S. inflation report, traders are forecasting additional rate cuts in China, which is why they sold the yuan on Wednesday, sending it to a one-month low of 7.1772 per dollar. 

As anticipated, the South Korean central bank held its policy rate stable at 1,318 won to the dollar for the eighth consecutive meeting.

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