The upcoming release of the US Personal Consumption Expenditures data is expected to show a 0.3% increase in headline prices for January, resulting in a 2.4% annual gain
The US dollar strengthened against the euro and yen on Wednesday in anticipation of upcoming US and European inflation data, alongside month-end portfolio rebalancing.
Bitcoin reached a more than two-year high due to robust market liquidity.
Brad Bechtel, global head of FX at Jefferies in New York, noted that foreign exchange volatility picked up on Wednesday, which may be “hedging in front of the inflation data,” and also because of month-end flows.
The implied volatility for pricing three-month options on the euro against the dollar rose to 6.01, the highest since Feb. 15, before settling at 5.74. Major currency pair volatility has been decreasing, with the euro/dollar measure hitting its lowest point since January 2022 on Tuesday.
Traders are closely monitoring data to gauge the Federal Reserve’s potential rate cut timeline, which has been pushed back to June from May due to strong economic growth, persistent inflation, and more hawkish comments from Fed officials.
The upcoming release of the US Personal Consumption Expenditures data is expected to show a 0.3% increase in headline prices for January, resulting in a 2.4% annual gain. The core index is forecasted to rise by 0.4% for the month and 2.8% annually. In addition to this, consumer price data for Germany, France, and Spain is set to be released on Thursday, ahead of euro area figures on Friday.
There is more chance of disinflation ongoing in the euro area, which perhaps could open the door for an earlier cut from the European Central Bank, said Danske Bank FX and rates strategist Mohamad Al-Saraf.
We think if inflation is stickier in the U.S. than it is in the euro area, then the dollar has to be strong, he added.
The dollar index was up 0.12% at 103.96, while the euro declined 0.11% to $1.0832.
The yen also weakened against the dollar, nearing the 150.88 level from Feb. 13, which was the lowest since Nov. 16.
Dollar strength against the yen is seen as an indicator of carry trades and reflects a current ‘risk on,’ high-liquidity market environment.
Traders are monitoring for potential interventions by the Bank of Japan and Ministry of Finance if the yen continues to weaken.
The dollar was up 0.12% at 150.68 yen.
The kiwi dropped 1.23% to $0.6094 after hitting $0.6083, the lowest since Feb. 15.
The Aussie fell 0.75% to $0.6493 after reaching $0.6488, the lowest since Feb. 15.
