The index quickly lost early gains and fell back into negative territory shortly after US inflation figures posted another weak reading in April.
The dollar closed steady on Wednesday against a basket of six major currenciesafter learning that inflation in the United States slowed more than expected, but offered little clarity on the outlook for monetary policy in the United States.
Against a basket of currencies, the dollar index fell 0.1% to 101.48 after hitting a low of 101.21. The euro rose 0.15% to $1.0979, while sterling was stable at $1.2624. The yen rose 0.73% to 134.50 to the dollar.
Data from the Labor Department showed annual inflation in April cooled to 4.9%., and it was below 5% for the first time in two years. However, so-called core inflation remained at 5.5%, suggesting that rates will need to stay high for some time to control it.
“The market is of the view that the Fed will cut rates sooner and faster than most other central banks. The data is showing some tentative signs of validation of those divergence expectations, but is unclear in suggesting that they are necessary.” even faster or deeper cuts,” said Alvise Marino, macro trading strategist at Credit Suisse in New York.
And I add: “When markets expect big things to happen, and the actual results aren’t all that shocking, expectation for future volatility tends to drop.”.
Fed funds futures traders expect a pause ahead of rate cuts due in September. The Fed’s rate target range is between 5% and 5.25%.
But Amo Sahota, director of Klarity FX, thinks the nearly 80 basis point cut that markets are pricing in by the end of this year “seems a bit aggressive.”
“I think what the data says is that the Fed can afford to pause and not have to raise interest rates. I don’t think this gives us the green light to say aggressive rate cuts,” Sahota said.
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Source: Ambito
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