Investors are grappling with whether the U.S. central bank will cut interest rates three times this year, as is currently expected, if inflation stays higher and economic growth remains strong
The dollar rose on Tuesday as traders waited on a fresh catalyst to give clues on Fed policy, while the yen slid after Japan’s finance minister said that he would not rule out any measures to cope with the weakening currency.
Investors are grappling with whether the U.S. central bank will cut interest rates three times this year, as is currently expected, if inflation stays higher and economic growth remains strong.
The dollar index rose marginally after data on Tuesday showed that orders for long-lasting U.S. manufactured goods rose more than expected in February, while business spending on equipment showed tentative signs of recovery as the economy’s growth prospects in the first quarter remained upbeat.
The market is intensely searching for signs of cracks in the U.S. economy and they are hard to find, and durable goods illustrates that again today, according to Adam Button, chief currency analyst at ForexLive in Toronto. It is a real wait and see market.
PCE due on Friday is this week’s main economic catalyst. The U.S. core PCE price index is seen increasing 0.3% in February, which would keep the annual pace at 2.8%.
Trading volumes on Friday may be light, however, with the U.S. stock and Treasuries markets shut for the Good Friday holiday.
The dollar index rose 0.06% to 104.28, while the euro dropped 0.05% to $1.0831.
The yen slid 0.09% to 151.52, reversing earlier gains, as verbal intervention by Japanese officials continued. It has weakened in the past week, despite the BOJ ending eight years of negative interest rates.
Traders continue to focus on the still-stark interest rate differentials between Japan and the rest of the world, especially the US. A break past 151.94 per dollar, reached in October 2022, would take the Japanese currency to its lowest since 1990.
In 2022, Japanese authorities intervened in currency markets to support the yen.
Dollar/yen is stuck near this 151.50 level. People want to go long/dollar yen because of carry returns, but if it goes to 152 or 153 they may get punished by the currency authorities so they do not want to try, said Yusuke Miyairi, currency strategist at Nomura.
