* Focus on U.S. CPI, with the rise seen slowing
* June rate cut odds slightly higher from Monday
* ECB meeting in focus as well
* Geopolitical tension could lift dollar demand
* Risk of yen move could be low with Kishida in US, analyst
says
NEW YORK, April 9 (Reuters) – The dollar was little
changed on Tuesday, with investors cautious ahead of U.S.
inflation data to be released on Wednesday, even as the yen
hovered near multi-decade lows, keeping traders on alert for any
possible action from Japan to prop up its currency.
Economists expect the headline U.S. consumer price index
(CPI) to have gained 0.3% on a monthly basis, compared with a
0.4% rise in February, according to a Reuters poll. Core CPI is
also expected to climb 0.3% for the month of March.
Ahead of the CPI report, the U.S. rate futures market has
raised the odds of a June rate cut to 58%, up from 52% late on
Monday, the CME’s FedWatch tool showed.
For 2024, fed funds futures have priced in about 74 basis
points (bps) in cuts, or about three rate decreases of 25 basis
points (bps) each, data showed.
“The dollar hasn’t really reacted much to the rise in
Treasury yields,” said Eugene Epstein, head of structured
products for North America at Moneycorp in New Jersey.
He noted that since the beginning of the year, the
benchmark 10-year yield has gained about 47 bps, but
the dollar has only advanced by 2.5%.
“One of two things could happen in the near term: either
the dollar strengthens to catch up with Treasury yields, or
Treasury yields come back down. That discrepancy needs to
narrow. And it’s just matter of time before that gap narrows.”
In afternoon trading, the dollar index, which tracks
the currency against six major peers, was flat at 104.12.
The dollar has failed to make any headway despite a ton of
hawkish signals from Fed officials last week and on Monday.
Dallas Fed President Lorie Logan, for instance, argued on
Friday, after jobs data, against imminently easing monetary
policy. Chicago Fed President Austan Goolsbee, on the other
hand, said on Monday the Fed must weigh how much longer it can
maintain its rate stance without damaging the economy.
U.S. interest rates aside, some analysts said geopolitical
risk might increase demand for safe-haven assets, including the
dollar.
Hopes of a ceasefire in Gaza diminished after Hamas said
Israel’s proposal that it received from Qatari and Egyptian
mediators did not meet Palestinian factions’ demands.
The dollar was flat to slightly lower against the yen at
151.755 yen, not far from 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.
“I kind of thought that with Japanese Prime Minister (Fumio)
Kishida in the U.S. that the risk of intervention is very low
because it would be embarrassing if Japan intervenes,” said Marc
Chandler, chief market strategist at Bannockburn Global Forex in
New York.
Kishida is in the United States, along with Philippine
President Ferdinand Marcos, Jr., for an economic and defense
summit.
“The Fed has not yet cut interest rates, which means the
Fed is more worried about inflation. But the strong dollar
helps curb inflation. So if you have an ally (like Japan)
selling dollars but you want a strong dollar, that could send
conflicting messages,” Chandler said.
A strong dollar makes imported goods cheaper for U.S.
consumers, helping cushion some of the impact of high inflation.
Also on Tuesday, Bank of Japan Governor Kazuo Ueda said
the central bank must consider reducing monetary stimulus if
inflation accelerates.
The euro slipped 0.1% to $1.0852, while sterling
edged up 0.1% to $1.2666.
Investors are also looking to the European Central Bank
meeting on Thursday. Analysts expect the ECB to hold rates this
week, while reiterating its decisions will remain
data-dependent.
(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by
Stefano Rebaudo in Milan, Dhara Ranasinghe in London, and Rae
Wee in Singapore; Editing by Jamie Freed, Barbara Lewis, Josie
Kao and Andrea Ricci)
