Written by Kevin Buckland
TOKYO (Reuters) – The dollar underperformed on Tuesday as markets looked ahead to this week's key U.S. economic data that will give new indications of when the Federal Reserve will start cutting interest rates.
The yen edged higher after data showed consumer inflation remained below the Bank of Japan's 2% target for the first time in nearly two years, as economists expected.
The U.S. dollar index against the country's basket of currencies, including the yen and euro, was trading flat at 103.78 in early Asian hours, after falling 0.17% on Monday.
According to CME's FedWatch tool, the market has all but ruled out the possibility of a March FOMC rate cut following strong U.S. consumer and producer price data, and recently revised expectations for a May rate cut. It has been announced that it has been postponed to June.
U.S. durable goods data will be released later on Tuesday, and the U.S. Consumer Expenditure Price Index for January, the Fed's preferred measure of inflation, will be released on Thursday.
Richard Franulovich, head of currency strategy at Westpac, said: “The still-weak DXY (dollar index) doesn't quite tell the US dollar story here…and if anything, the risk of significant events ahead. “This could potentially drive further increases.” Note.
“The bulk of DXY's gains this year have unfolded in just a few key sessions, with clear consolidation taking place outside of that,” he said. “DXY’s lackluster past few days looks almost like a continuation of that profile.”
The Australian and New Zealand dollars fell. The Australian dollar fell 0.1% to US$0.6533, continuing its decline from Thursday's three-week high of US$0.6595.
The kiwi fell 0.2% to $0.6161 after hitting $0.6218 on Thursday, its highest since January 15.
Traders are bracing for what could be a key policy meeting by the Reserve Bank of New Zealand (RBNZ) on Wednesday. Markets are pricing in a 1 in 3 chance that the RBNZ will raise the official cash rate by 5.5% to combat stubborn inflation.
Overnight, the cryptocurrency Bitcoin hit a more than two-year high of $54,969 after enterprise software company MicroStrategy Inc announced it had purchased about 3,000 more Bitcoins.
Japan's January Consumer Price Index (CPI) was slightly higher than expected, putting the Bank of Japan on track to end its negative interest rate policy next month, and the dollar fell 0.1% to 150.54 yen.
The euro was almost unchanged at $1.0847, and the pound was flat at $1.26825.
(Reporting by Kevin Buckland; Editing by Shri Navaratnam)