Home ForexArticles US dollar rises modestly as inflation stickiness persists and yen hits 34-year low By Reuters

US dollar rises modestly as inflation stickiness persists and yen hits 34-year low By Reuters

by SuperiorInvest

By Gertrude Chávez-Dreyfuss

NEW YORK (Reuters) – The dollar rose moderately on Thursday in a choppy session, as weaker-than-expected U.S. producer prices in March did not ease concerns about persistent inflation that have reinforced belief that the Federal Reserve will delay cutting interest rates this year.

Fed officials who spoke Thursday also repeated the need for a patient approach to easing monetary policy, boosting the dollar.

Data on Thursday showed the producer price index (PPI) rose 0.2% month-on-month in March, compared with a 0.3% rise expected by economists polled by Reuters. On a year-on-year basis, it rose 2.1%, compared to an estimated gain of 2.2%.

The US currency fell after the PPI news, but recovered.

A separate report showed 211,000 initial U.S. jobless claims for the week ending April 6, compared with a forecast of 215,000, reflecting continued labor market strain. The dollar barely responded as investors focused on inflation.

The PPI report came after the stronger-than-expected consumer price index (CPI) released on Wednesday. The US CPI rose 0.4% monthly in March, compared to expectations for a 0.3% increase.

“The CPI has done enough damage to the outlook for an earlier rate cut,” said Thierry Albert Wizman, global rates and currencies strategist at Macquarie in New York.

“We may have to live with that to have three more months of low inflation and that means a cut is delayed.”

In afternoon trading, the dollar was steady against the yen at 153.23 yen, after falling below 153 yen following the PPI data. Earlier in the session, the dollar hit a new 34-year high of 153.32 yen.

The yen's decline against the dollar has revived fears of intervention, as Japanese officials reiterated that they would not rule out any measures to address excessive swings.

Japan intervened in the currency market three times in 2022 as the yen fell to a 32-year low of 152 per dollar.

The , a measure of the value of the dollar against six major currencies, rose 0.1% to 105.26 (). Against the Swiss franc, the dollar fell 0.3% to 0.9098 francs.

Following the PPI data, the US interest rate futures market has priced in a roughly 69% probability of a Fed rate cut in September, CME's FedWatch tool showed. This timeline emerged after last month's higher-than-expected consumer price index on Wednesday. For weeks, rate futures had factored in a June rate cut.

Fed funds futures have also reduced the number of 25 basis point (bp) rate cuts this year to less than two, or about 42 bp, from about three or four a few weeks ago.

“Market implied rate expectations have not moved materially from yesterday's levels and extraordinarily wide rate differentials are keeping the US dollar elevated,” said Karl Schamotta, chief market strategist at Corpay in Toronto.

In other currencies, the euro fell 0.1% to $1.07026. It earlier fell to a two-month low of $1.0699 after the European Central Bank kept interest rates at a record 4% as expected but sent a signal it was preparing for a cut.

In the United States, the Federal Reserve signaled Thursday that a rate cut is not imminent.

New York Federal Reserve President John Williams said that while the US central bank has made considerable progress in reducing inflation, it does not yet need to adopt looser monetary policy, given volatile movements in inflation.

“There is no clear need to tighten monetary policy in the very short term,” given the current state of the economy, Williams said.

Richmond Fed President Thomas Barkin, a voter this year on the Fed's policy-setting committee, echoed the same sentiment. He said the latest figures did not increase his confidence that price pressures were easing more broadly across the economy.

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