The dollar remained steady on Monday as traders awaited the release of more inflation data from the United States. This data is expected to provide further insight into whether the Federal Reserve needs to take additional measures to control price pressures. The Japanese yen, on the other hand, remained vulnerable and hovered close to a one-year low against the dollar, as market participants kept an eye out for possible intervention by Tokyo.
The focus for most traders this week will be on the U.S. consumer price index (CPI) numbers, which are scheduled to be released on Tuesday. These numbers will be closely watched after the Federal Reserve’s recent policy meeting, where it tempered its hawkish stance. However, Fed Chair Jerome Powell hinted last week that the battle against inflation may not be over yet. Additionally, retail sales data the following day will provide more information on the state of demand in the U.S. economy, which has shown resilience despite high borrowing costs.
According to Lenny Jin, Global FX Strategist at HSBC, the U.S. dollar is expected to remain strong due to the continued growth outperformance of the U.S. economy. HSBC predicts that October’s U.S. core CPI will remain unchanged compared to the previous month, with further disinflation signals not expected until February 2024.
The market reaction was relatively muted to the news that Moody’s lowered its outlook for the U.S. credit rating to “negative” shortly before foreign exchange trading closed in New York on Friday.
The dollar index, which measures the dollar against a basket of currencies, was mostly flat at 105.80. Meanwhile, the Japanese yen continued to face pressure from rising U.S. Treasury yields and the ongoing strength of the dollar. The yen was trading around 151.58 against the dollar on Monday, just below the one-year low of 151.74 reached at the end of October.
Tony Sycamore, a market analyst at IG, believes that a strong economic data release from the U.S. this week could push the dollar/yen pair to 152. On the other hand, a more supportive risk environment could entice carry buyers to add to their positions and test the Bank of Japan’s measures.
In other currency news, sterling stood at $1.2228 to the dollar, showing strength ahead of the release of UK average weekly earnings data on Tuesday and a CPI reading on Wednesday.
(This story has been corrected to fix the dollar/yen level in the analyst comment in paragraph 11)
Reporting by Brigid Riley
Editing by Shri Navaratnam
