By Tom Westbrook and Amanda Cooper
SINGAPORE/LONDON (Reuters) – The dollar held steady on Monday but the year’s first monthly loss was forecast as investors focused on inflation data in the U.S., Europe and Japan that were expected to determine the outlook for global interest rates.
In recent months, currency trading has been dominated by a carry rush that has punished low-yielding currencies and supported the dollar, while U.S. data has been both heated and chilly and undermined policymakers’ confidence in the interest rate outlook.
Several major pairs are in tight ranges. The euro, which gained 0.9% against the dollar last week, was in the middle of a range that has remained for over a year at $1.085.
The euro did not react on Monday to a survey on Monday that showed business sentiment in Germany deteriorated in May, contrary to forecasts of improvement.
Monday’s trading was weakened by holidays in the UK and the US.
German inflation data on Wednesday and euro zone readings on Friday will be watched for confirmation of the European interest rate cut that investors have announced for next week.
Sterling has been testing the top of a range it has held this year at $1.2735.
Friday’s reading of the U.S. Core Personal Expenditures Price Index, the Federal Reserve’s preferred measure of inflation, is expected to hold steady month-over-month.
The dollar fell after data showed a slowdown in consumer price growth in April, and confirmation of that trend could trigger further declines, but the overall picture is that inflation and inflation rates remain above the Fed’s 2% target.
The index, which measures the US currency’s performance against six other currencies, recently fell slightly to 104.71. It is on track for a 1.5% decline in May, the most in a single month since December.
“A 25 basis point (US interest rate) cut in September is priced in at a 50/50 proposition, and a total of 57 bps cuts are priced in through December – so we would need a big surprise to change this price,” he added. – said Christ Weston, strategist at Pepperstone.
“U.S. core PCE above 3% could do the trick, pushing the dollar higher, while anything below 2.7% could trigger relief in markets,” he said.
TO CONTINUE
As interest rate uncertainty persists, investors are chasing yields and selling low-yielding currencies such as the yen, yuan and Swiss franc against the euro and dollar.
The Swiss franc has been falling throughout the year and hit its lowest level since April 2023 last week at 0.9928 francs per euro.
The yen could mark its first monthly gain this year this month thanks to suspected intervention by Japanese authorities in tardy April and early May, but it has since fallen.
The rate was steady at 156.88 per dollar on Monday, but received little support from rising Japanese government bond yields – on the 10-year, for example, they remain almost 350 basis points below U.S. yields.
The Tokyo CPI data released on Friday is a reliable guide to the domestic trend and will be closely watched. Friday’s data from the Ministry of Finance will also reveal the scale of Japan’s intervention.
The US decision to shorten stock market clearing from two to one is another factor to watch in currency trading this week as dealers expect it could result in tranquil trading in Asia in the morning.
“Asian investors will have just a few hours to aggregate funding requirements, process trade-related FX instructions and manage execution,” said Lloyd Rees, director of global deposit products for Asia and the Middle East at BNY Mellon (NYSE:).
In cryptocurrency markets, ether closed with its biggest weekly gain in nearly three years after the surprise approval of some U.S. exchange-traded fund (ETF) applications.
Further approvals are necessary before launch, but the price of the second-biggest cryptocurrency by market value rose 25% against the dollar last week and another 5% in Asian trading on Monday to $3,938.
