TOKYO- The US dollar traded in a narrow range on Thursday even as investors ramped up bets that the Federal Reserve will cut interest rates next week, while the yen slid following fresh media reports that the Bank of Japan may stand pat.
The Australian dollar surged after domestic employment data beat forecasts, indicating a far more resilient labor market than many had expected, while the euro held steady ahead of the European Central Bank’s monetary policy decision later in the day.
The US consumer price index report met forecasts on Wednesday with a 0.3 percent rise in November, the largest gain since April after advancing 0.2 percent for four straight months.
Markets now see a 98.6 percent probability the Fed will cut rates by 25 basis points at its Dec. 17-18 meeting, compared with 78.1 percent a week ago, the CME FedWatch tool showed.
The US producer price index will be released later on Thursday, which may further cement those bets.
The Fed’s rate path beyond December is less certain given core CPI has still risen for several months in a row, said Carol Kong, a currency strategist at Commonwealth Bank of Australia.
“The USD will likely stay bid while concerns about a stall in disinflation underpin current market pricing for a more gradual pace of FOMC rate cuts next year,” she said.
Markets are also pondering how President-elect Donald Trump’s proposed tariff and tax cut policies, which are expected to be inflationary, could impact the Fed’s outlook.
A rise in US Treasury yields offered support for the dollar.
The dollar index which measures the greenback against six major peers, was mostly unchanged at 106.580 after rising to its highest since Nov. 27 at 106.81 on Wednesday.
The dollar rose 0.17 percent to 152.72 yen after hitting a two-week high of 152.845 yen the previous day as market players trimmed back bets for a rate hike in Japan next week.
Reuters reported on Thursday that the BOJ is leaning toward keeping rates steady, as policymakers prefer to spend more time scrutinizing overseas risks and clues on next year’s wage outlook.
