© Reuters. FILE PHOTO: U.S. dollar bills are seen in this illustration taken March 10, 2023. REUTERS/Dado Ruvic/Illustration/File Photo
LONDON (Reuters) – The dollar was steady on Monday as a holiday in most major Asian markets tempered the start of what could become a busy week, with all eyes on U.S. inflation data. United looking for clues about when the Federal Reserve might start cutting rates. .
The euro edged lower to $1.0778, breaking a 10-day high hit in early trading after a small rebound was recorded last week after steady declines in 2024. A reading of euro zone economic growth in The fourth quarter on Wednesday could offer a new direction.
The pound was steady at $1.2632, although the Japanese yen strengthened a fraction to 149.04 per dollar as the upcoming release of US CPI data for January on Tuesday limited moves.
Changes in expectations about when and how quickly central banks will cut interest rates as inflation falls are a major driver of currency markets today.
Strong jobs data earlier this month has largely ruled out a Federal Reserve interest rate cut in March, and markets currently view a move in May as more likely than unlikely.
Analysts expect US core CPI to hit 0.3% m/m in January, but still high at 3.8% y/y.
Carol Kong, currency strategist at Commonwealth Bank of Australia (OTC), noted that Fed rate setters say they want more evidence that inflation will stay close to the 2% target before considering a cut.
“Inflation persistently close to target and/or a weakened labor market would give them that evidence,” he said, adding that Tuesday's data is unlikely to be enough to cause a big drop in the dollar.
On Wednesday, a reading of British CPI inflation will similarly influence opinion on when the Bank of England will begin cutting interest rates; It is currently considered to be behind the Federal Reserve and the European Central Bank.
Markets are also keeping an eye on the highly rate-sensitive Japanese yen, which strengthened markedly late last year as markets priced in the first U.S. rate cuts, but has since weakened as that momentum unfolds. delay.
Japanese Finance Minister Shunichi Suzuki said on Friday that authorities were closely watching currency movements.
“The dollar/yen is likely to be mainly buoyed by developments in the US in the near future, but intervention warnings are likely to increase in frequency around the 150 level,” Barclays analysts said in a note.
Japanese authorities intervened in late 2022 to support the yen, which weakened to 151.94 per dollar.