Fed rate expectations will be challenged or confirmed by CPI data, which influenced trading on Monday.
“Rising stocks and declining debt yields are causing the dollar to take a breather ahead of tomorrow’s inflation data,” said Joe Manimbo, a senior market analyst at payments company Convera in Washington.
“Risk appetite is also weighing on the yen, though it doesn’t help that the next BoJ (Bank of Japan) chief doesn’t necessarily signal an imminent change in the course of negative rate policy.”
Investors expect the US headline CPI to post a 0.5% rise in Januaryafter falling 0.1% in December, and the underlying figure is forecast to rise to 0.4%, from 0.3% the previous month, according to a Reuters poll.
The euro hit a one-month low of $1.0656 in Asia trade, but later added 0.4% to $1.0719. Sterling added 0.6% to $1.2134, after hitting a one-month low of $1.1961 last week.
Meanwhile, the dollar index, which tracks the US currency against six major currencies, at 103.29, down 0.3%. The dollar appreciated to 132.91 yen, the highest level since January 6. In the afternoon, it traded 0.7% higher at 132.34 yen.
Rising returns on US Treasury debt was one of the main drivers of the yen’s decline. The yield on the benchmark 10-year paper hit a new six-week high of 3.755% and the yield on the two-year notes was at its highest since late November at 4.543%.
market expectation
Strong US jobs data released earlier in the month suggests the economy is doing well, meaning there is less danger of the Fed keeping rates high.
As a result, “this week’s US CPI is one of the most important data in recent memory,” Barclays analysts said in a note. “The dollar has risen thanks to (…) the strength of the US labor market, but the evolution of the narrative will be updated again on Tuesday.”
Positive inflation data could force markets to rethink whether the Federal Reserve will cut interest rates this year, especially after the strong jobs report earlier in the month.
The dollar has also benefited from its safe haven status. The United States shot down a fourth object over the United States over the weekend, raising fears of new geopolitical tensions following the downing of a Chinese spy balloon last week.
Source: Ambito
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