The main market focus on Wednesday is U.S. CPI for March, which traders have been awaiting for hints on the Fed’s policy outlook
The dollar edged higher on Wednesday ahead of a key inflation report later in the day, while the yen stayed near multi-decade lows, keeping traders on alert for signs Japanese authorities could intervene to prop up the currency.
The main market focus on Wednesday is U.S. CPI for March due at 1230 GMT, which traders have been eagerly awaiting for hints on the Fed’s policy outlook.
The inflation data follows a strong jobs report last Friday that beat forecasts, raising questions on how soon and how much the Federal Reserve will cut rates this year.
Ahead of the data, U.S. interest rate futures set the odds of the first cut taking place in June at around 50%, as per CME Group’s FedWatch tool. The possibility of a hold has jumped to 46%.
A solid inflation figure could lead markets to price out a June cut, which could propel the dollar sharply up, according to analysts.
A lot of forex traders are expecting to see higher readings again, according to Ulrich Leuchtmann, head of FX and Commodity Research at Commerzbank.
Then it would seem clear as daylight that there will be no quick Fed rate cuts, he added.
But if last month’s reading drops below 0.3%, that would lead to a reassessment of the U.S. inflation trend and could lead to major weakness in the dollar, he said.
The U.S. dollar index rose 0.02% to 104.1.
The Japanese currency was flat at 151.83 per dollar.
Elsewhere, the kiwi was up 0.12% at $0.60685, having briefly climbed to a three-week high of $0.60775 versus the dollar after the RBNZ kept rates on hold, as expected, but warned of persistent inflation.
