TOKYO- The US dollar traded in a tight range on Thursday, as market players tried to gauge when the Federal Reserve will likely begin cutting interest rates as Fed officials weighed in on Tuesday’s inflation data.
While under renewed pressure this week, the yen kept off the three-month low hit against the greenback on Tuesday despite data showing Japan’s economy slipped into a recession as it unexpectedly shrank for two straight quarters on weak domestic demand.
The US inflation data pushed back bets on a first Fed rate cut to the middle of the year, after showing the consumer price index gained 3.1 percent in January on a year-on-year basis, compared with an expected 2.9 percent rise.
The market is currently pricing in no rate cut in March compared to 77 percent bets a month ago that rate cuts would start then, according to CME’s FedWatch tool. Markets see about a 60 percent chance the Fed will also hold rates at its May meeting.
Chicago Fed President Austan Goolsbee said on Wednesday the Fed’s path will still be on track even if price increases run a bit hotter-than-expected in coming months, and the central bank should be wary of waiting too long before it cuts interest rates.
Fed Vice Chair for Supervision Michael Barr said the Fed remained confident, but the January CPI numbers show the United States’ path back to 2 percent inflation “may be a bumpy one.”
“The Fed are taking a long-view approach and their ‘path’ back to 2 percent allows for mishaps along the way. And comments from (Fed officials) after the hot inflation report attest to this,” said Matt Simpson, senior market analyst at City Index.