Written by Ankur Banerjee
SINGAPORE (Reuters) – The dollar received support on Wednesday thanks to growing expectations that the Federal Reserve (U.S. central bank) is unlikely to cut interest rates until later this year ahead of crucial inflation readings this week, while the yen drifted to its weakest levels in four. Weeks.
The dollar also rose on rising Treasury yields after a lackluster bond auction selling two- and five-year bonds raised doubts about demand for US government debt.
The euro fell 0.09 percent to $1.0848, but is on track to achieve 1.7 percent gains during the month, which is the first month of gains in 2024. The pound sterling recorded its most recent transactions at $1.27525, on its way to achieving 2 percent gains in May.
US consumer confidence unexpectedly improved in May after declining for three straight months, but concerns about inflation persisted and many households expected interest rates to rise over the next year, data showed on Tuesday.
The mixed poll comes as markets ponder the Fed's next move, with traders pricing in 34 basis points of cuts this year compared to 150 basis points of easing at the start of 2024.
The September rate cut is now set at 44%, as inflation remains steady along with pockets of weakness in the world's largest economy amid a strong labor market, shifting expectations around US interest rates, the CME FedWatch tool showed.
The market's focus this week will be on a series of inflation reports, with German inflation data scheduled for Wednesday and the broader euro zone reading on Friday.
But the main event will be when the US core personal consumption expenditures price index report – the Fed's preferred measure of inflation – is released on Friday. It is expected to remain steady on a monthly basis.
Against a basket of currencies, there was little change at 104.7, away from the two-week low of 104.33 that it touched on Tuesday. The index fell 1.5% in May.
“FX markets continue to bide their time in anticipation of core personal consumption expenditures data later this week,” said Christopher Wong, currency strategist at OCBC. “We should continue to see 104-105 holding until the next catalyst comes.”
The Australian dollar was little changed at $0.66485 after Australian consumer price inflation unexpectedly rose to a five-month high in April, raising risks that the next move in interest rates could be higher.
“Faster-than-expected inflation in Australia in April once again raises concerns about the final leg of the global inflation path after several months of subdued inflation,” said Charu Chanana, head of currency strategy at Saxo in Singapore.
Meanwhile, the yen hit a four-week low of 157.41 to the dollar early Wednesday, as the currency returned to levels that led to bouts of suspected interventions from Tokyo at the end of April and early May. The last price was at 157.255.
The yen hit a 34-year low of 160.245 to the dollar on April 29, triggering at least two suspected interventions that week, with Japanese authorities estimated to have spent more than 9 trillion yen ($57.21 billion) to prop up the weak currency. .
“Japanese officials may be issuing verbal warnings again, but without concrete action, the dollar/yen is likely to move toward levels seen in late April,” said Prashant Nuniha, chief interest rate strategist for Asia-Pacific at TD Securities.
The yen was also broadly weaker against other currencies. The pound sterling rose 0.13 percent to 200.68 yen, the strongest level since August 2008, earlier in the session, while the euro touched its highest level in a month at 170.795 yen.
Bank of Japan board member Seiji Adachi said on Wednesday that the bank may raise interest rates if sharp declines in the value of the yen lead to increased inflation or the public's perception of future prices moves more than expected.
The yen, which is sensitive to Treasury yields, has fallen 10% over the year against the dollar but may post monthly gains in May.
In Asian hours, the US benchmark 10-year yield rose to 4.568%, the highest level since May 3.
($1 = 157.3100 yen)