SINGAPORE- The dollar was steady on Monday after US inflation data showed only a modest rise last month, easing some concerns about the pace of US rate cuts next year, while the yen loitered near 156 per dollar, raising the possibility of intervention.
Investor sentiment was lifted when a US government shutdown was averted by Congress’ passage of spending legislation early on Saturday.
In a holiday-curtailed week, trading volumes are likely to thin out as the year-end approaches.
The Federal Reserve last week shocked markets by projecting a measured pace of rate cuts ahead, sending Treasury yields and the dollar surging while casting a shadow on other economies, especially emerging markets.
But Friday’s data on the Fed’s preferred gauge of inflation showed moderate monthly rises in prices, with a measure of underlying inflation posting its smallest gain in six months. That eased some concerns about how much the Fed may cut in 2025.
Still, the annual increase in core inflation, excluding food and energy, remained stubbornly above the US central bank’s 2 percent target.
Vasu Menon, managing director of investment strategy at OCBC, said the Fed’s shift has brought back the inflation specter, which is likely to keep investors on edge.
“If US inflation proves to be stickier than anticipated in the coming months, especially with Trump’s policies, a more hawkish Fed stance could set off near-term market volatility,” Menon said.
