On Wednesday, the dollar slipped from a recent three-month high as investors reacted to the unexpectedly high U.S. inflation report from the previous session. This delayed expectations for a Federal Reserve rate cut until mid-year.
The latest U.S. consumer price index (CPI) data for January showed a 3.1% increase from a year earlier, surpassing the anticipated 2.9% rise.
Consequently, fed funds futures now indicate no Fed cut in March and an approximately 80% likelihood of easing at the June meeting, according to LSEG’s rate probability app.
Market futures are also reflecting expectations of three 25-basis-point rate cuts this year. The dollar index, which gauges the U.S. currency against six others, declined marginally to 104.97, after reaching a recent high of the same value.
Helen Given, an FX trader at Monex USA in Washington, commented, “The U.S. dollar could have a bit of room left to run up slightly more through the end of Q1 of this year.”
Given pointed out the resilience of the U.S. economy, suggesting that further remarks from Fed officials could bolster the dollar.
Given added, “I’ve started to use the term ‘American exceptionalism’ when discussing the picture for the U.S. dollar, as outperformance of the U.S. economy over its peers over the last year has become almost so commonplace we’ve come to expect it.”
Regarding UK inflation, the sterling dipped 0.4% to $1.2541 following data indicating no acceleration in January, potentially alleviating pressure on the Bank of England (BoE) to maintain current interest rates.
The annual UK inflation rate remained at 4.0% in January, unchanged from December, contrary to economists’ forecasts of a 4.2% increase.
In Japan, currency officials cautioned against swift and speculative yen movements, leading to a 0.1% decline in the dollar against the yen. Japanese Finance Minister Shunichi Suzuki emphasized monitoring the market closely to prevent undesirable economic impacts.
Regarding eurozone economic data, the euro edged up 0.1% to $1.0720 despite flat economic growth in the region during the last quarter of 2023. Eurozone employment rose slightly, in line with expectations from a Reuters poll.
Meanwhile, in the cryptocurrency market, Bitcoin surged to $51,578, its highest level since December 2021.
