The US inflation report is likely to provide more hints this week on whether the Federal Reserve has to do more to curb price pressure, so traders were keeping a close eye on the dollar on Monday.
The markets continued to be on the lookout for potential Tokyo action, and the Japanese yen remained weak, trading close to a one-year low versus the US dollar.
While the Fed’s policy meeting this month softened its hawkish attitude, most traders will be closely watching the U.S. consumer price index (CPI) data that are scheduled for release on Tuesday. Fed Chair Jerome Powell signalled last week that the fight against inflation might not be done yet.
The U.S. economy’s demand, which has demonstrated tenacity in the face of high borrowing costs, will be further revealed by retail sales the next day.
Lenny Jin, Global FX Strategist at HSBC, stated in a note that “we expect the USD to remain on a strong footing,” noting the U.S. economy’s ongoing outperformance in growth as one important driver.
The U.S. core CPI for October is expected by HSBC to be unchanged from the previous month, “while further disinflation signals may only come in February 2024,” according to Jin.
In other news, the market did not react strongly to the announcement that Moody’s had downgraded the U.S. credit rating outlook to “negative” just before Friday’s foreign exchange trading concluded in New York.
At 105.80, the dollar index—which compares the value of the dollar to a basket of other currencies—was mostly unchanged as of late.
However, the yen, which has been under pressure from rising U.S. Treasury rates and ongoing dollar gains, saw no respite.
On Monday, the Japanese yen was trading at about 151.58 vs the US dollar, slightly below the one-year low of 151.74 that was reached at the end of October.
According to Tony Sycamore, an IG market analyst, a strong figure from one of this week’s U.S. economic data releases “would certainly do the trick” in driving the dollar/yen to 152. “Alternatively, a continuation of the more supportive risk backdrop would likely entice carry buyers to add to positions and test the measure of the (Bank of Japan).”