US dollar flat after hot inflation data

The US dollar was little changed in choppy trading on Tuesday (Mar 12), after moving higher earlier in the global session, amid data showing hotter-than-expected inflation last month for the world’s largest economy.

The greenback initially jumped after the data, but later fell. The dollar index was last flat at 102.83.

The Labor Department report showed that the Consumer Price Index (CPI) rose 0.4 per cent in February, in line with the forecast for a 0.4 per cent increase. On a year-on-year basis, the CPI gained 3.2 per cent, compared with the estimated 3.1 per cent rise.

In the broader market, the euro was flat at US$1.0928, after hitting a roughly two-month high last week.

Analysts expect the European Central Bank (ECB) to communicate on Wednesday the outcome of discussions on the Eurosystem’s operational framework review.

Money markets are pricing in a first ECB rate cut by June and a total of 100 basis points of easing by year-end.

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Bank of Japan (BOJ) Governor Kazuo Ueda offered a slightly bleaker assessment of Japan’s economy than he had in January, while Finance Minister Shunichi Suzuki said the country was not at a stage where it could declare deflation as beaten. Their remarks come ahead of the BOJ’s policy meeting next week.

“It remains our view that results from wage negotiations announced this week should provide the green light for the BOJ to begin tightening monetary policy next week,” said Lee Hardman, senior currency analyst at MUFG Bank.

Wage demands “provided further evidence that wage growth is likely to be as strong, if not stronger, in the upcoming fiscal year”, he added.

Japan’s largest trade union confederation, Rengo, has demanded pay rises of 5.85 per cent this year, topping 5 per cent for the first time in 30 years.

The yen was last 0.33 per cent lower at 147.47 per dollar, its biggest daily fall since Feb 13.

“Until we have clear evidence about a normalization process from the BOJ (on an exit from its ultra-dovish monetary policy), corrections on USDJPY provide an opportunity for market participants to jump into carry longs again,” said UBS foreign exchange strategist Yvan Berthoux.

One-week implied volatility on dollar/yen, which measures expectations for price swings in the currency pair, jumped to 12.115 per cent on Tuesday, its highest level since December, and was last at 11.992.

In cryptocurrencies, Bitcoin was down 0.1 per cent to US$72,067, but remained just a whisker away from a record high set in the previous session.

Ether peaked at US$4,093.70, its highest since 2021, though later pared some of those gains to stand at US$4,024.30. REUTERS