On Monday, the dollar remained mostly stable as data indicating declining US prices supported speculation that the Fed may lower interest rates in June. In the meantime, the yen lingered close to 152 a dollar, raising concerns among traders about potential intervention.
Compared to the 0.4% increase that analysts had predicted, the personal consumption expenditures (PCE) price index increased by 0.3% in February, according to data released on Friday by the Commerce Department's Bureau of Economic Analysis.
The data also revealed that last month's increase in consumer spending was the highest in just over a year, highlighting the strength of the economy. On Friday, most markets around the world were closed.
Jerome Powell, the chairman of the Federal Reserve, said on Friday that the most recent US inflation data was in line with what they would like to observe, in comments that were consistent with his statements following the Fed's policy meeting last month.
Based on the CME FedWatch tool, markets are pricing in a 68.5% possibility of a rate cut by the Fed in June, up from a 57% possibility at the end of the previous week. This year, traders are also factoring in 75 basis points of reductions.
The Fed is still expected to start reducing rates in June, according to strategists at Citi. The Fed may lower interest rates three times this year if activity continues. However, they are expecting five rate reductions this year due to another softening of the labor market.
The euro was up 0.06% at $1.07945, close to the over-one-month low of $1.0769 reached last week. With a 0.12% daily increase, sterling was trading at $1.2637.
The index of the dollar, which compares the US dollar with six competitors, fell 0.038% to 104.42, but it is still very near the six-week high of 104.73 it reached the previous week.
The yen has been the center of attention in the currency market as its approach toward levels last observed in 1990 has renewed the possibility of Japanese government intervention.
The yen last traded at a slightly stronger rate of 151.315 to the dollar on Monday, after plunging to a 34-year bottom of 151.975 on Wednesday.
Japan made two currency market interventions in 2022 when the yen was falling near a 32-year low of 152 against the dollar: one in September and another in October.
It's still hard to predict what Japan has planned for the yen. The Bank of Japan no longer has to worry about the unexpected movement of the yen influencing balance sheets because its fiscal year is finished.
However, the yen has recovered from 34-year lows thanks to reports of last week's emergency meeting of the three monetary authorities: the Bank of Japan, the Ministry of Finance, and the Financial Services Agency.
Shunichi Suzuki, the finance minister, stated on Monday that he would not rule out solutions against excessive currency movement and would react properly, echoing his warning on swift yen fluctuations.
Citi analysts note that the yen has dropped against the Chinese yuan as well and that they still expect the Japanese government to step in sometime in the 152–155 per dollar range. They stated in a client letter on Friday that while they do not anticipate the MOF to step in during the CNY, a further increase in this currency pair might be one of the factors that motivates Japan to intervene on foreign exchange.
They stated in a client letter on Friday that while they do not anticipate the MOF to step in during the CNY, a further increase in this currency pair might be one of the factors that motivates Japan to intervene on foreign exchange.
In other terms, the New Zealand dollar was up 0.20% at $0.599, while the Australian dollar increased by 0.21% to $0.654.
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