Dollar nears six-month high after pre-Fed data shock, yen steady By Reuters

By Harry Robertson

LONDON (Reuters) – The dollar rose toward its highest level since November on Wednesday ahead of the Federal Reserve's interest rate decision later in the day after data on Tuesday showed more signs of inflationary pressures in the U.S. economy.

Meanwhile, the yen remained steady after falling overnight to its lowest level since suspected intervention by Japanese authorities on Monday.

The index, which tracks the currency against six major currencies, rose slightly to 106.33, after earlier approaching the 106.51 level, which would be the highest since November 1.

Global markets were somewhat weak with traders in many countries off for Labor Day or International Workers' Day.

The euro settled at $1.0669, after falling by 0.52% the previous day when US data pushed the dollar higher.

Figures released Tuesday showed that US labor cost growth accelerated in the first quarter of the year, with the labor cost index rising 1.2%, more than the 1% that economists had expected.

A series of stronger-than-expected data has caused investors to curb their bets on how much the Federal Reserve will cut interest rates this year. Traders on Wednesday expected cuts of just 29 basis points by December, down from more than 170 basis points at the start of the year.

Expectations that interest rates will remain higher for longer have led to US bond yields rising sharply, making them more attractive and supporting the dollar.

“The steady stream of better-than-expected US inflation data continues,” said Chris Turner, head of global markets at ING. “Yesterday it was the labor cost index's turn to surprise on the upside.”

Focus on Powell

The Fed is expected to leave interest rates at 5.25% to 5.5% when it announces its decision at 2pm EST (1800 GMT) on Wednesday, but the focus will be on Chairman Jerome Powell's comments on the latest data.

“Jerome Powell will have to acknowledge that price trends in the US have turned to the upside, that activity is holding up well and that any easing this year will have to be postponed,” Turner said.

The Japanese yen fell slightly to 157.91 yen to the dollar, after earlier approaching the 158 yen level.

Traders pointed to the Japanese authorities' purchase of the yen as a catalyst for a sharp rise in the currency on Monday to 154.4 yen to the dollar, after it fell to its lowest levels since 1990 at 160.25.

Investors' expectations that Japanese interest rates will remain low compared to those seen in the United States have caused the currency to decline by about 12% this year.

Japanese authorities may intervene to strengthen the currency in the coming days, given the pattern of repeated intervention in late 2022, strategists said.

The pound sterling was last trading at $1.2484, down 0.1% during the day and 1.9% for the year.

The Swiss franc fell to its lowest level since October on Wednesday at 0.9223 to the dollar. The franc's decline follows a surprise interest rate cut by the Swiss National Bank in March.

The stock price fell nearly 6% to below $58,000 as investors cut their bets on federal interest rate cuts this year, dealing a blow to interest rate-sensitive assets such as cryptocurrencies.