US dollar struggles for direction ahead of data despite rise in yields

THE US dollar struggled for direction on Tuesday (Apr 9) as investors were cautious ahead of inflation data due on Wednesday, while US Treasury yields rose with markets scaling back their bets on future Federal Reserve rate cuts.

The yen hovered near multi-decade lows, keeping traders on alert for any signs of intervention.

Traders in Fed fund futures bet on a total of 62 basis points (bps) of Fed rate cuts late on Monday, which was the lowest rate-cut expectation since October last year and down from 150 basis points (bps) in January.

The prospect of a first 25 bps cut in June had a 49 per cent probability, down from 57 per cent a week ago, CME Group data showed.

The dollar ended last week lower as traders digested mixed economic data, including an unexpected slowdown in US services expansion and US job growth exceeding expectations.

“We’ve got to be careful always with these (US) payroll numbers because they are very vulnerable to significant revisions over time,” said Guy Miller, chief market strategist at Zurich Insurance Group. “But it does paint a picture of a labour market that is still tight.”

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

The dollar index, which tracks the currency against six major peers, fell by 0.01 per cent to 104.05.

US consumer price inflation for March on Wednesday will provide further clues about the Fed policy path.

“After upside surprises, there is an understandable caution over a potential weaker print that would quickly see June rate cut expectations increase again,” Derek Halpenny, head of research global markets at MUFG Bank, said.

Meanwhile, the Fed kept sending hawkish signals.

Dallas Fed President Lorie Logan on Friday, after the jobs data, argued against any imminent push towards easier monetary policy, while Bank of Chicago president Austan Goolsbee said on Monday that the Fed must weigh how much longer it can maintain its current rate stance without damaging the economy.

Some analysts said that geopolitical risk might increase demand for safe-haven assets, including the dollar.

Hopes of a ceasefire in Gaza diminished after Hamas said that Israel’s proposal that it received from Qatari and Egyptian mediators did not meet Palestinian factions’ demands.

The dollar added 0.02 per cent to 151.94 yen, holding near a 34-year high of 151.975 yen hit last month as Japanese officials continued trying to talk up the currency.

The threat of intervention has kept the dollar from breaching the closely watched 152 yen level.

“While a break of 152.00 may not trigger forex intervention immediately, we would see a strong chance of the Ministry of Finance (MOF) acting to prevent a move to 155.00,” said Jane Foley, senior forex strategist at RaboBank. “Strong US inflation data and soft Japanese economic numbers would increase the risk of the MOF being forced into taking action.”

Ryota Abe, an economist at SMBC, sees the yen moving in a tight range from 151 to 152.5.

Also on Tuesday, Bank of Japan governor Kazuo Ueda said that the central bank must consider reducing the degree of monetary stimulus if inflation accelerates.

The euro rose 0.1 per cent to US$1.0869, while sterling was at US$1.2687, up 0.26 per cent on the day.

Eurozone banks lowered the bar on mortgage approvals last quarter for the first time in over two years, but demand for credit kept falling amid high borrowing costs and a stagnant economy, an European Central Bank (ECB) survey showed on Tuesday.

The lending survey could influence ECB communications at its Thursday policy meeting, according to Shreyas Gopal, forex strategist at Deutsche Bank Research. Analysts expected the ECB to hold rates this week, while reiterating its decisions will remain data-dependant. REUTERS