Dollar steady as traders ponder Fed rate cut bets; yen shaky at 150/$

By Thomson Reuters Feb 29, 2024 | 7:35 PM

By Ankur Banerjee

SINGAPORE (Reuters) – The dollar was steady on Friday after data showed U.S. inflation remained sticky but easing gradually, keeping alive the chance of the Federal Reserve cutting rates in June, while the yen slid back to the key 150 per dollar level.

Bitcoin’s blistering rally took a breather and was last at $61,622, near a more than two year high and within range of the record high.

The cryptocurrency surged 45% in February, its biggest monthly gain in more than three years, boosted by cash rushing into exchange-traded funds which were approved and launched this year in the United States.

The dollar index, which measures the U.S. currency against six rivals, was at 104.11 after a volatile overnight session following the inflation report. The data showed U.S. prices picked up in January in line with expectations, while annual inflation slipped to the lowest in three years.

“The inflation readings can be noisy month to month,” strategists at Commonwealth Bank of Australia said in a note.

“The data does emphasise the need for the FOMC to be cautious before beginning to normalise interest rates, especially in the current context of a still-tight labour market.”

A string of strong economic data and recent reports showing sticky inflation had led traders to rethink when the Fed will start its easing cycle, with expectations that June is likely to be the starting point.

Markets are pricing in a 65% chance of the Fed cutting rates in June, CME FedWatch tool showed, compared with March as the starting point at the beginning of the year.

Traders are pricing in 82 basis points of cuts this year, closer to the Fed’s own projection of 75 bps of easing and drastically lower than 150 bps of rate cuts anticipated when the year began.

U.S. central bankers are looking through recent data showing price pressures rebounded last month, and are focusing instead on overall progress on inflation that they say will likely set the agenda for interest-rate cuts later this year.

“I expect things are going to be bumpy,” Atlanta Federal Reserve Bank President Raphael Bostic said.

After a brief bout of strength on Thursday, the yen was back at 150 per dollar territory it has been rooted to in the past few weeks, leading to worries over possible intervention from the Japanese authorities.

On Friday, the yen weakened 0.19% to 150.27 per dollar, having strengthened to as much as 149.21 on Thursday after comments from Bank of Japan official Hajime Takata hinted at the need to exit ultra-easy policies.

Takata’s comments stoked expectations that the central bank could end negative rates in March rather than the widely held view of a move in April.

But on Friday, BOJ Governor Kazuo Ueda said it was too early to conclude that inflation was close to sustainably meeting the central bank’s 2% inflation target and stressed the need to scrutinise more data on the wage outlook.

The contrasting comments are likely to keep investors guessing about the next move from the central bank.

In other currencies, the euro was up 0.08% at $1.0812, while sterling was last at $1.2625, up 0.02% on the day.

The Australian dollar rose 0.08% to $0.65025, while the New Zealand dollar was little changed at $0.6088.

(Reporting by Ankur Banerjee in Singapore; Editing by Shri Navaratnam)