TOKYO- The dollar remained on the back foot on Wednesday after tumbling versus major peers overnight as a benign reading for US producer prices reinforced bets on Federal Reserve interest rate cuts this year.
New Zealand’s dollar dropped sharply from a four-week high after the Reserve Bank of New Zealand reduced the key cash rate and flagged more cuts to come, surprising some market participants.
The yen strengthened against the dollar, buoyed by lower US bond yields, with crucial US consumer price index figures looming later on Wednesday.
Japanese Prime Minister Fumio Kishida’s decision to not run for reelection in his party’s leadership race next month had little effect on markets, analysts said.
Meanwhile, risk-sensitive currencies like sterling and the Australian dollar remained firm after the unexpected softening in US inflation buoyed equities. The Aussie briefly reached a more than three-week peak, while sterling traded near a more than two-week high following its best one-day performance against the dollar since late April.
The dollar index – which measures the currency against six major rivals, including sterling, the euro and the yen – was steady at 102.61, after slumping 0.49 percent overnight.
Traders were already certain that the Federal Open Market Committee (FOMC) would lower rates at its September meeting before the producer price data, but ramped up bets for a super-sized 50 basis point cut to 53.5 percent from 50 percent a day earlier, according to CME’s FedWatch Tool.
Commonwealth Bank of Australia analysts expect the dollar to be in a holding pattern before the release of US CPI data, but then see risks tilted toward further weakness.
