Dollar rises slightly ahead of key inflation data

The dollar maintained a steady stance against most major currencies on Thursday, with traders awaiting crucial US inflation data for insights into the Federal Reserve’s policy direction.

Meanwhile, the substantial interest rate differential between Japan and the United States provided some support for the US dollar against the yen.

Following a more than three percent decline last week, marking its largest weekly drop since December 2022, the dollar edged higher against the yen in slow, incremental movements.

In early Asian trading, the yen received a modest uplift after the Bank of Japan released minutes from its April meeting, indicating that many board members favored eventual interest rate hikes and reductions in bond purchases. However, this initial momentum proved short-lived.

Market sentiment was influenced by the Federal Reserve’s recent monetary policy meeting, where concerns over the sudden slowdown in US job growth fueled expectations of two interest rate cuts this year. Nevertheless, the considerable yield gap between Japan and the US persisted.

Attention now shifts to upcoming US economic indicators, particularly the producer price index for April and the consumer price index scheduled for release next week. Investors are closely monitoring these data points for signals regarding inflation trends and their alignment with the central bank’s 2 percent target.

The dollar index showed a marginal uptick of 0.05 percent to 105.55, while the yen remained nearly unchanged at 155.59 against the dollar.

Ahead of the Bank of England’s monetary policy decision later in the day, the British pound dipped by 0.07 percent to $1.2487. Market expectations lean towards the possibility of the Bank of England taking steps toward its first interest rate cut in four years amid declining inflation.

Investors are particularly interested in whether the Bank of England will hint at a potential rate cut in June, especially as the European Central Bank has already signaled its intention to reduce borrowing costs.

The euro held steady at $1.0743.

In the realm of cryptocurrencies, Bitcoin experienced a slight decline of 0.21 percent, reaching $61,436.49.