SINGAPORE- The dollar was steady on Tuesday as investors awaited the crucial inflation report this week that will likely shape the US rates outlook, while the yen was hovering near a two-week low, stoking intervention worries.
The currency market has been sedate this week, with investors seeking to gauge what path the Federal Reserve will take this year in the wake of recent softer-than-expected US labor market data and comments from officials that indicated the US central bank was unlikely to raise rates further.
Investors have had to dial back their expectations of rate cuts this year due to sticky inflation and are now pricing in 42 basis points of easing this year, compared with 150 bps of easing anticipated at the start of 2024.
They are also pricing in a 60 percent chance of a cut in September, versus 75 percent a month earlier, according to CME FedWatch tool.
All eyes this week will be on the consumer price index (CPI)on Wednesday which is expected to show that core consumer prices rose 0.3 percent month-on-month in April, down from 0.4 percent growth the prior month, according to a Reuters poll.
But before that, US Producer Price Index (PPI) is due to be released later on Tuesday, which analysts will parse through to get a sense of whether inflation is heading towards the Fed’s target of 2 percent .
“A softer CPI, coming on the heels of a weaker payrolls report, will reignite market expectations of a July rate cut, weighing on the dollar,” said Nicholas Chia, Asia macro strategist at Standard Chartered
The euro eased a bit to $1.0786 but is up 1 percent against the dollar so far this month, while sterling last bought $1.2559, up roughly 0.5 percent so far in May.
