Market shrugs as dollar eases post inflation revision

The dollar’s movement narrowed on Friday, marking a fourth consecutive week of gains, as traders adjusted their expectations regarding the pace of interest rate hikes by the Bank of Japan and potential cuts by the Federal Reserve.

Despite revised upward U.S. monthly consumer prices for December being less than initially reported, traders remained unfazed. Although underlying inflation retained some strength, the overall assessment of Fed rate cut timing remained unchanged.

Furthermore, the Labor Department’s annual revisions revealed a slight uptick in the consumer price index (CPI) for October and November compared to previous reports.

Steven Ricchiuto, U.S. chief economist at Mizuho Securities USA LLC in New York, stated, “The revisions aren’t going to make the Fed cut rates.

He added, “The market’s in a rush, (but) the Fed is sitting there saying we’re not in a rush. Actually, things are pretty good from their perspective.”

US dollar

The dollar index declined by 0.029% to 104.08, whereas the euro gained 0.05% to $1.0781.

According to Marc Chandler, chief market strategist at Bannockburn Global Forex in New York, “The widely anticipated revisions are more for economists and are too small to be significant for the market.”

“We’ve had a significant move this week, and I believe they were merely consolidating in the FX market,” he stated. “The market last year became overly aggressive regarding how much the Fed would cut and when they would commence.”

A plethora of Federal Reserve officials this week indicated that the U.S. central bank sees no urgent need to reduce rates. This bolstered the dollar, driving the yen to a 10-week low as traders scaled back on expectations of how swiftly the Bank of Japan (BOJ) might increase interest rates.

BOJ Governor Kazuo Ueda remarked on Friday that there is a strong likelihood of accommodative monetary conditions persisting even after the central bank terminates its negative interest rate policy, a move the market anticipates could occur as soon as next month.

This sentiment mirrors dovish remarks made by his deputy, Shinichi Uchida, a day earlier, stating that “it’s hard to imagine” rates would ascend “rapidly.”

The yen held steady at 149.24 per dollar, having briefly touched 149.575 earlier, its lowest since Nov. 27. It’s set for a roughly 0.58% decline this week, marking drops in five of the last six weeks.

Japanese Finance Minister Shunichi Suzuki stated he was “monitoring FX movements closely,” a phrase he hadn’t used since Jan. 19. Traders showed little reaction to the remark.

The upcoming significant U.S. data release is January’s Consumer Price Index (CPI) on Tuesday.

Traders have largely dismissed the possibility of a Federal Reserve rate cut at the upcoming March policy meeting, a shift from a 65.9% chance perceived a month earlier, according to CME Group’s FedWatch Tool.

The tool indicates approximately a 60% probability of a rate cut by the Fed during its May meeting. The euro remained relatively stable at $1.0773, while sterling maintained its position at $1.260.

Both currencies have demonstrated resilience throughout the week, despite speculation in the market regarding potential early rate reductions, countered by statements from officials at the European Central Bank and the Bank of England.

The Swiss franc weakened to 0.8762, with the dollar gaining nearly 1% against the haven currency this week.

This movement follows the analysis of data suggesting possible interventions by the Swiss National Bank in the markets to diminish the strength of the franc.

Michael Manua
Michael Manua
Michael, a seasoned market news expert with 29 years of experience, offers unparalleled insights into financial markets. At 61, he has a track record of providing accurate, impactful analyses, making him a trusted voice in financial journalism.
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