Dollar Holds Steady Before US Inflation Data

On Monday, the dollar took a breather as investors turned their attention to upcoming U.S. inflation data later in the week, while the yen edged closer to 34-year lows amid ongoing vigilance for potential intervention measures in Tokyo to stabilize the weakening currency.

Last week, the dollar experienced fluctuations as traders analyzed a mixed set of U.S. economic indicators. Despite a slowdown in services growth, unexpectedly robust hiring numbers led to a scaling back of expectations for Federal Reserve rate cuts this year.

The dollar index, gauging the greenback against six major currencies, remained broadly flat at 104.38 on Monday, while U.S. Treasury yields, reflecting expectations of interest rate moves, edged higher.

Wednesday’s release of U.S. consumer price inflation data for March will be a key determinant of dollar strength, while the European Central Bank (ECB) policy meeting on Thursday is another significant event for major global currencies this week.

Currency analysts at MUFG noted that recent developments have raised concerns that the Federal Reserve might lag behind other major central banks in cutting interest rates. They emphasized that another unexpected inflation surge could prompt a reevaluation of Fed rate-cut expectations, potentially bolstering the U.S. dollar.

Against the yen, the dollar strengthened by 0.16% to 151.88, nearing its highest level since July 1990. Japanese Prime Minister Fumio Kishida reiterated authorities’ commitment to utilize “all available means” to address excessive yen depreciation, signaling Tokyo’s readiness to intervene in the market to support the currency.

Bank of Japan Governor Kazuo Ueda, speaking to the country’s parliament on Monday, provided limited insight into monetary policy but highlighted the adoption of a simpler policy framework.

Former top currency official in Japan, Takehiko Nakao, suggested that authorities could intervene in the foreign exchange market to counter sharp yen declines “at any time” if deemed necessary.

Meanwhile, the euro dipped by 0.1% to $1.08305, while sterling was down 0.1% at $1.26255. The ECB’s likely course of action this week is to maintain rates and potentially hint at a cut in June. Despite growing confidence that inflation is trending towards its 2% target, the ECB has remained noncommittal about further easing measures.

In the cryptocurrency realm, bitcoin surged by 5.3% to $71,230.