The dollar remained stable on Tuesday as traders awaited the release of an inflation report that is expected to influence the outlook for U.S. interest rates. Meanwhile, the yen was hovering near a two-week low, raising concerns about potential intervention. The currency market has been relatively calm this week as investors assess the Federal Reserve’s next moves in light of recent disappointing U.S. labor market data and central bank comments. With inflation remaining higher than expected, expectations for rate cuts have been scaled back, with a 60% chance of a cut in September. All eyes are now on the consumer price index report, which is expected to show a smaller increase than the previous month. The U.S. Producer Price Index, set to be released later today, will also be closely watched to gauge whether inflation is moving closer to the Fed’s target of 2%. The euro and sterling remained relatively stable against the dollar, with the dollar index at 105.25.
According to a recent Reuters poll, almost two-thirds of economists are predicting that the Federal Reserve will lower its key interest rate twice this year, with the first cut expected to happen in September. This is an increase from just over half of economists in the previous survey.
Traders are becoming increasingly anxious as the yen approaches levels that have historically led to suspected interventions by Tokyo. Currently, the yen is at 156.32 per U.S. dollar, after hitting a two-week low of 156.40 earlier in the session.
In April through early May, Japan’s Ministry of Finance was suspected of intervening in the currency market after the yen reached a 34-year low of 160.245 on April 29. However, the market remains bearish on the currency due to the significant difference between Japan’s ultra-low yields and those in other major economies.
To address concerns, Japan’s Finance Minister Shunichi Suzuki stated that the government will closely cooperate with the Bank of Japan regarding foreign exchange to ensure that their policy objectives align. Suzuki emphasized the importance of the exchange rate moving in a stable manner based on fundamentals, rather than focusing solely on its level.
The yen received temporary support on Monday when the Bank of Japan sent a hawkish signal by reducing its offer amount for a segment of Japanese government bonds. Additionally, the International Monetary Fund commended Japan’s commitment to allowing the yen to move flexibly, as it enables the central bank to focus on achieving price stability. The IMF cautioned against using monetary policy to slow down the currency’s decline, despite some analysts advocating for such measures.
In early trading, the Australian dollar and New Zealand dollar remained relatively unchanged. The Australian dollar was last seen at $0.6608, while the New Zealand dollar was at $0.6017.