Forex: Dollar Holds Steady as Investors Eye Fed Signals Amid Cooling Inflation

The dollar remained broadly stable on Monday as investors awaited further indications from Federal Reserve officials to clarify the future path of U.S. interest rates. This anticipation follows a series of cautious statements from Fed officials, even as recent data points to cooling inflation.

The Japanese yen started the week on a weaker note, slipping to 155.80 per dollar. Traders are closely watching for any signs of government intervention, which has kept the currency within a tight trading range over the past few days.

Last week’s data showing a slowdown in U.S. consumer prices for April led markets to price in the possibility of 50 basis points (bps), or at least two rate cuts, by the Federal Reserve this year. However, several Fed officials have expressed caution about the timing of any rate reductions. As a result, traders are now betting on approximately 46 bps of easing this year, with only a single rate cut in November being fully priced in.

In early trading on Monday, the euro edged up 0.07% to $1.087525, approaching the nearly two-month high of $1.0895 reached last week. The dollar index, which measures the U.S. currency against six major rivals, remained virtually unchanged at 104.46.

Key Economic Data Ahead

Investors are now focused on the upcoming Personal Consumption Expenditures (PCE) price index report, the Fed’s preferred measure of inflation, due on May 31. Additionally, market participants will be scrutinizing the minutes of the Fed’s latest meeting, scheduled for release on Wednesday, for any insights into the central bank’s thinking.

This week will also see the release of flash Purchasing Managers’ Indexes (PMIs) for the eurozone, Germany, the UK, and the U.S., along with a roster of speeches from various Fed officials. These data points and comments will be critical in shaping market expectations about future monetary policy moves.

Performance of Other Major Currencies

• British Pound (Sterling): The pound was last trading at $1.2705, just shy of the nearly two-month high it reached on Friday.
• Australian Dollar: The Aussie dollar rose 0.14% to $0.6703.
• New Zealand Dollar: The kiwi was little changed, trading at $0.61315.

The dollar’s stability reflects a cautious market mood as investors seek more clarity on the Federal Reserve’s policy direction amid mixed signals from economic data and Fed officials. The upcoming PCE inflation report and Fed minutes are likely to provide further guidance, while global PMI data and Fed speeches will also play a crucial role in shaping market sentiment.