Dollar steady as traders ponder Fed rate cut bets; yen shaky at 150/$

© Reuters. FILE PHOTO: U.S. Dollar banknote is seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

By Ankur Banerjee

SINGAPORE (Reuters) -The dollar was steady on Friday after data showed U.S. inflation remained sticky but is easing gradually, keeping hopes alive that the Federal Reserve will start cutting interest rates in June, while the yen stumbled back to the key 150 per dollar level.

Bitcoin‘s blistering rally took a breather and was last at $61,400, near a more than two-year high and within range of the record high.

The cryptocurrency surged 45% in February, its biggest monthly gain in more than three years, boosted by cash rushing into exchange-traded funds which were approved and launched this year in the United States.

The dollar index, which measures the U.S. currency against six rivals, was at 104.12 after a volatile overnight session following the inflation report. The data showed U.S. prices picked up in January in line with expectations, while annual inflation slipped to the lowest in three years.

“The data does emphasise the need for the FOMC to be cautious before beginning to normalise interest rates, especially in the current context of a still-tight labour market,” Commonwealth Bank of Australia (OTC:CMWAY) strategists said. 

A string of strong U.S. economic data and recent reports showing persistent price pressures had led traders to rethink when the Fed will start its easing cycle, with the latest expectations that June is likely to be the starting point.

Markets are pricing in a 66% chance of the Fed cutting rates in June, CME FedWatch tool showed, compared with March as the starting point at the beginning of the year.

Traders are pricing in 82 basis points of cuts this year, closer to the Fed’s own projection of 75 bps of easing and drastically lower than 150 bps of rate cuts anticipated when the year began.

U.S. central bankers are looking through recent data showing price pressures rebounded last month, and are focusing instead on overall progress on inflation that they say will likely set the agenda for interest-rate cuts later this year.

Investor attention will now turn to payroll data next week to gauge how the U.S. labour market is faring.

“We need to see something breaking on the data side, either up or down,” said Rob Carnell, ING’s regional head of research for Asia-Pacific. “Otherwise, there’s just no real catalyst for anything to move at the moment.”

Meanwhile, the euro was 0.1% higher at $1.08155 ahead of the inflation report from the euro zone that is likely to show a dip in prices, bolstering the case for the European Central Bank to start easing rates later this year.

Data on Thursday showed inflation eased in Germany, France and Spain, suggesting that euro zone inflation, to be published on Friday, will show a slowdown to around 2.5% in February from 2.8% January, moving even closer to the ECB’s own 2% target.

The Australian dollar rose 0.17% to $0.65085, while the New Zealand dollar was 0.09% higher at $0.60925. [AUD/]

After a brief bout of strength on Thursday, the yen was back at 150 per dollar territory it has been rooted to in the past few weeks, leading to worries over possible intervention from the Japanese authorities.

On Friday, the yen weakened 0.28% to 150.38 per dollar, having strengthened to as much as 149.21 on Thursday after comments from Bank of Japan official Hajime Takata hinted at the need to exit ultra-easy policies.

Takata’s comments stoked expectations that the central bank could end negative rates in March rather than the widely held view of a move in April.

But on Friday, BOJ Governor Kazuo Ueda said it was too early to conclude that inflation was close to sustainably meeting the central bank’s 2% inflation target and stressed the need to scrutinise more data on the wage outlook.

The contrasting comments are likely to keep investors guessing about the next move from the central bank.

“It’s sort of a ‘good cop, bad cop’ thing going on in Japan at the moment,” said ING’s Carnell.

“I think the markets been getting excited again about the possibility of an April move … in the big scheme of things, does it really matter if it’s April or June? As long as it’s coming.”