Dollar rises and Yen falls amid lower expectations of interest rate cuts

The dollar gained ground on Thursday following the release of higher-than-expected US inflation data, which tempered remaining expectations for the Federal Reserve to initiate a cycle of interest rate cuts in June. Meanwhile, the yen depreciated to mid-1990s levels.

Investor attention has now shifted towards US producer price data and the European Central Bank’s monetary policy meeting scheduled for later on Thursday.

The yen’s drop to 153.24 against the dollar on Wednesday, its lowest level in 34 years, reignited concerns about potential government intervention. Tokyo authorities reiterated their readiness to take action to address excessive currency fluctuations.

On Thursday, the yen saw a modest uptick of 0.17 percent to 152.93 per dollar, slightly lower than Wednesday’s level. The increase in the US consumer price index for March, surpassing economists’ expectations, contributed to the yen’s movement.

Year-to-date, the yen has depreciated approximately eight percent against the dollar, hovering near the 151 level since the Bank of Japan’s decision to end eight years of negative interest rates last month.

Following the inflation data release, traders significantly revised down their expectations for interest rate cuts this year, with September emerging as a potential starting point for rate reductions.

According to the CME Group’s Fed Watch tool, markets now anticipate an 18 percent likelihood of the US Federal Reserve cutting interest rates in June, compared to 50 percent before the CPI data. Traders now expect a total reduction of 43 basis points this year, significantly less than the 75 basis points anticipated by the central bank.

The dollar index, which measures the US currency against a basket of six major currencies, climbed more than 1 percent on Wednesday, nearing a five-month high of 105.30. It stood at 105.15 on Thursday.

Amidst the dollar’s ascent, the Chinese yuan declined to its lowest levels in five months despite efforts by the central bank to bolster its value.

In other currency movements, the euro traded at $1.07465 following a one percent decline on Wednesday ahead of the ECB’s monetary policy decision. The British pound reached $1.2548, up 0.07 percent on Thursday. The Australian dollar rose 0.14 percent to $0.6522, while the New Zealand dollar gained 0.17 percent to $0.59835.