US dollar lower before inflation-heavy data deluge

THE US greenback inched decrease on Monday (Feb 26) forward of a macro-packed week that might shed extra mild on the worldwide charge outlook, with a US inflation studying taking centre stage.

The core private consumption expenditures (PCE) value index, the Federal Reserve’s most popular measure of inflation, is due on Thursday, with a 0.4 per cent rise on a month-to-month foundation forecast.

Inflation figures within the eurozone, Japan and Australia additionally land this week, alongside a charge resolution from the Reserve Bank of New Zealand (RBNZ) and China PMI surveys.

The euro was up 0.3 per cent at US$1.0854, after good points towards the greenback in eight of the final 9 buying and selling classes.

ECB officers have reiterated their deal with inflation within the eurozone, significantly the service sector and wage development.

European Central Bank president Christine Lagarde on Friday mentioned wage development had moderated, nevertheless it was too early to imagine inflation had been conquered.

“Eurozone inflation is expected to cool to 2.5 per cent and yet the ECB minutes still show the reluctance from the ECB to even talk about cutting rates,” City Index market strategist Fiona Cincotta mentioned.

“We also saw inflation expectations in the eurozone ticked up very slightly, but also that upbeat mood on the back of earnings has been pulling some safe-haven flows out of the dollar and has pushed the euro higher,” she mentioned.

A significant driver behind the euro’s power has been the narrowing hole between the place merchants consider US and eurozone rates of interest will end the 12 months.

Only two weeks in the past, buyers have been assuming the Fed would minimize charges by round 80 foundation factors this 12 months, in contrast with round 100 bps from the ECB. By Monday, that hole had all however disappeared.

The essential occasion for buyers this week shall be Thursday’s US core PCE. Hotter readings of producer and shopper inflation have elevated the probability that this measure may prime expectations as properly, which may additional push again expectations for when the Fed may ship its first minimize.

Markets are at the moment pricing in nearly a 20 per cent likelihood that the Fed will start easing charges in May, versus a virtually 90 per cent likelihood a month in the past, in line with the CME FedWatch device.

“If anything, the (data) may be stronger than markets currently expect, and that will likely give a modest boost to the dollar,” mentioned Carol Kong, a foreign money strategist at Commonwealth Bank of Australia (CBA).

The greenback index was down 0.2 per cent at 103.74.

Japan’s nationwide shopper costs are due on Tuesday and are forecast to indicate core inflation slowed to an annual charge of 1.8 per cent in January, the bottom since March 2022.

That would complicate the Bank of Japan’s (BOJ) plans to finish unfavorable rates of interest in coming months, holding the yen underneath strain within the close to time period.

The yen was final regular at 150.57 per greenback, having already fallen greater than 6 per cent towards it this 12 months.

“News that Japan fell into technical recession in H2 2023 will have dampened some of the market’s enthusiasm regarding the pace of monetary tightening from the BOJ,” mentioned Jane Foley, head of FX technique at Rabobank.

Sterling, in the meantime, rose 0.2 per cent to US$1.2696, however eased by 0.1 per cent towards the euro to 85.50 pence.

In cryptocurrencies, ether rose by as a lot as 6.5 per cent above US$3,130 to a different two-year excessive. It was final up 3.9 per cent at US$3,055, whereas bitcoin rose 0.3 per cent to US$51,140. REUTERS