On Friday, the US dollar remained steady compared to other major currencies as investors assessed a U.S. consumer price inflation report. This evaluation was juxtaposed against market expectations, suggesting a likelihood of the Federal Reserve implementing rate cuts as early as March.
In December, U.S. consumer prices rose by 0.3%, primarily driven by an ongoing upward trend in rents.
The month saw a 3.4% increase on an annual basis, surpassing economists’ forecasts of a 0.2% monthly gain and a 3.2% yearly rise, as indicated in a Reuters poll.
Despite the positive inflation figures, traders are currently pricing in a 73.2% probability of the Federal Reserve initiating its first 25 basis point cut in March. This anticipated move is expected to be followed by several additional rate reductions, according to the CME Group’s FedWatch Tool.
“Once again, we see a disparity between market pricing, data and the Fed’s narrative,” said Senior Market Analyst at City Index Matt Simpson.
“The U.S. dollar didn’t behave in such a way to suggest USD bears are running scared,” he said.
The dollar index remained strong at 102.25, slightly lower than Thursday’s peak at 102.76 but significantly higher than the five-month low of 100.61 recorded in December. During that period, traders actively factored in expectations of multiple Federal Reserve cuts for the year.
Federal Reserve officials showed limited reaction to the recent data. Chicago Fed Bank President Austan Goolsbee indicated uncertainty regarding whether there has been adequate progress for the Fed to initiate rate cuts.
“When we have weeks or months of data to come, I don’t like tying our hands,” he said.
Cleveland Fed President Loretta Mester stated on Thursday that, based on the latest Consumer Price Index (CPI) figures, it would likely be premature for the central bank to implement a policy rate cut in March.
Commerzbank analysts noted that what matters to the Federal Reserve is the apparent difficulty in achieving the final stage of bringing inflation back to the target. They anticipate that the initial rate cut, contrary to market expectations for March, will not materialize.
The euro maintained its position around $1.0977 after seeing gains against the dollar the previous day. Meanwhile, the British pound was last quoted at $1.2776, reflecting a 0.1% increase for the day.
The Japanese yen, on the other hand, lingered around 145.11 per dollar, avoiding the one-month low of 146.41 reached against the greenback on Thursday. The yen’s performance was supported by a decline in U.S. Treasury yields, which remained at approximately 3.98% following the release of the CPI data.
The offshore yuan remained stable at 7.170, showing little movement despite recent economic indicators pointing to a somewhat uncertain start for the year. Regulatory support for the currency persisted, reflecting expectations that policymakers would likely introduce additional stimulus measures.
In other parts of Asia, the Taiwan dollar experienced minimal fluctuations ahead of the crucial presidential and parliamentary elections scheduled for Saturday.
Turning to the realm of cryptocurrencies, bitcoin was relatively unchanged at $46,118.00. The cryptocurrency had witnessed a surge to a two-year high overnight, following the approval by the U.S. Securities and Exchange Commission on Wednesday to offer Exchange-Traded Funds (ETFs) linked to bitcoin.
According to Reuters.
By. Pham Thanh Bien
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