Written by Brigid Riley
TOKYO (Reuters) – Major currencies were stable on Monday, with the dollar firming against other countries, as market participants awaited U.S. inflation data to gauge the prospects for interest rate cuts this year.
Expectations for interest rate cuts this year are rising following April's weaker-than-expected U.S. employment report and the Federal Reserve's policy announcements.
According to CME's FedWatch tool, the market is pricing in a 61.2% chance that the FOMC will begin cutting rates at some level in September, with a total rate cut of about 50 basis points expected.
But comments from Fed officials last week were mixed as speakers debated whether interest rates were high enough. Rising consumer inflation expectations revealed in Friday's survey could further complicate the debate.
“The rise in inflation expectations is likely to reflect a stagnation in the development of disinflation and will do little to ease price pressures,” Westpac economists said in a note to clients.
Investors are looking to see how sticky inflation is after recent data showing the economy is slowing.
The market has an opportunity this week, with inflation figures coming in the form of the Producer Price Index (PPI) on Tuesday, followed by the Consumer Price Index (CPI) on Wednesday.
Federal Reserve Chairman Jerome Powell is also scheduled to attend a meeting of the Foreign Bankers Association in Amsterdam on Tuesday.
“For the U.S. dollar to really come off the wheels, the incoming data needs to show disinflation, not just some weakness here and there,” said Matt Simpson, senior market analyst at City Index.
“If the inflation numbers pick up again this month, the slowdown in growth and slightly weaker employment data will certainly be reversed.”
The dollar index, which measures the U.S. dollar against a basket of currencies, posted its first weekly gain last week after two consecutive weeks of declines, and was essentially flat at 105.34.
The euro was unchanged at $1.0769, as the euro zone prepares to release its own inflation figures on Friday.
The pound was firm on the day at $1.2517, down 0.03%. Data on Friday showed Britain's economy grew by its strongest in nearly three years in the first quarter, ending a shallow recession that began in the second half of last year.
The yen fell 0.11% to 155.91 yen. The dollar has strengthened after falling 3% at the beginning of the month, marking its steepest weekly decline since early December 2022 following two allegations of interference by Japanese authorities.
Although the market remains bearish on the Japanese currency, non-commercial short positions have decreased from 179,919 contracts on April 23, the highest since June 2007, according to CFTC yen futures data. are doing.
As the yen weakens, markets will be wary of further intervention.
China's offshore yuan stabilized at around 7.2352 yuan, the lowest in a week.
China's consumer prices rose in April, while producer prices fell more sharply, data released over the weekend showed, with domestic demand improving as the government navigates challenges to revive a shaky economy. It suggests.
The central bank also promised to support the economic recovery.
Among cryptocurrencies, Bitcoin was last up 1.99% to $61,682.00.
(Reporting by Brigid Riley; Editing by Christopher Cushing)