The dollar exhibited strength against the euro as investors prepared for the release of key U.S. inflation data, coinciding with month- and quarter-end position adjustments.
The Japanese yen also showed modest weakness, trading at 151.38 per dollar after briefly approaching the 152 level, its weakest since 1990, on Wednesday. This came after Japan’s top monetary officials hinted at potential intervention to prevent further declines.
The primary focus this week in the U.S. economic sphere is the release of Personal Consumption Expenditures (PCE) data on Friday, following higher-than-expected consumer and price inflation figures for January and February. Traders are keen to decipher whether the Federal Reserve will maintain its course towards potential rate cuts, given persistent inflationary pressures alongside robust economic growth.
Helen Given, FX trader at Monex USA, noted that while inflation has exceeded expectations thus far in 2022, it is unlikely to be sustained, aligning with the Fed’s trajectory towards three 25-basis-point rate cuts this year.
Earlier on Thursday, the dollar saw a rally following remarks from Fed Governor Christopher Waller, who suggested that recent underwhelming inflation data supports the case for the central bank to refrain from adjusting its short-term interest rate target.
However, Given cautioned that this move may have been somewhat exaggerated due to limited flows across global markets.
With U.S. Treasuries and stock markets closed for the Good Friday holiday, and foreign exchange markets expected to be thinly staffed, increased volatility could be anticipated.
Fed Chair Jerome Powell is scheduled to speak on Friday, adding to the potential market impact.
In terms of currency movements, the euro hit a five-week low at $1.0775 and was last down 0.34% at $1.0789, while the pound weakened 0.15% to $1.262.
The dollar index climbed 0.1% to 104.52, touching 104.73 earlier, its highest level since mid-February.
Looking ahead, the release of inflation data on Friday could have significant implications, particularly for the yen. Market observers note that a breakthrough above the 152 level in the dollar/yen pair could trigger substantial moves, potentially leading to intervention from Japanese authorities.
Japanese Prime Minister Fumio Kishida emphasized that all options remain on the table to address excessive currency movements, underscoring Tokyo’s readiness to intervene in the market if necessary.
Given the diminishing impact of verbal warnings from Japanese officials on yen pricing, tangible intervention risks are now being closely monitored.
In cryptocurrency markets, bitcoin gained 2.91% to $70,848.75.