By Ankur Banerjee
SINGAPORE (Reuters) – The dollar was steady on Friday as traders wagered that the Federal Reserve is done with rate hikes after data showed U.S. consumer prices increased moderately in July, while the yen was flirting with the psychologically key 145 level.
The Japanese yen eased 0.10% to 144.89 per dollar in early Asian hours, its lowest since June 30, when it also briefly breached 145 per dollar level, stoking investor fears of another round of interventions from the Japanese authorities.
Japan intervened in September last year when the dollar rose past 145 yen, pushing the pair to around 140 yen as the Ministry of Finance bought the yen to weaken the dollar.
The yen was also lower against the euro at 159.135, just shy of the 15-year peak of 159.19 it touched on Thursday.
Saxo Markets strategists said intervention fears might lead to some profit taking, but noted that the Japanese authorities are likely to continue to be patient.
With Japan on holiday on Friday, liquidity is expected to be thin.
Overnight, data showed the U.S. consumer price index rose 0.2% last month, matching the gain in June, with the CPI climbing 3.2% in the 12 months through July.
Economists polled by Reuters had forecast the CPI would rise 0.2% last month and by 3.3% on a year-on-year basis.
Moderating inflation, together with an easing labour market, has bolstered economists’ conviction that the U.S. central bank will be able to engineer a “soft landing” for the economy.
“Inflation is grinding back towards target and the labour market is slowly cooling,” said Ryan Brandham, head of global capital markets for North America at Validus Risk Management.
“But the FOMC will want to see yet more data before deciding in September if progress has been fast enough to warrant a pause, or if the balance of risks calls for another hike to ensure inflation targets are met.”
Traders of futures tied to the Fed’s policy rate see less than a 10% chance that the central bank will increase its benchmark overnight interest rate from its current 5.25%-5.50% range at a Sept. 19-20 policy meeting. The Fed’s first rate cut is priced into the futures contracts by March of 2024.
“Market pricing currently favours a pause, but the market has underpriced the Fed’s actions before,” Brandham cautioned.
The dollar index, which measures the U.S. currency against six rivals, eased 0.078% to 102.54, but was on course to clock gains for the fourth straight week.
The euro was up 0.08% to $1.0988, while the kiwi eased 0.03% to $0.602.
The Australian dollar rose 0.20% to $0.6534. Earlier, the head of Australia’s central bank said it was possible some further tightening will be required, but appeared to suggest the amount of rate hikes so far should be sufficient to bring inflation to heel.
Appearing before lawmakers, outgoing Reserve Bank of Australia Governor Philip Lowe said the recent data so far are consistent with the economy continuing to travel along the “narrow path” to a soft landing.
Sterling was last at $1.2684, up 0.07% on the day, looking to snap its three-day losing streak ahead of GDP data.
(Reporting by Ankur Banerjee in Singapore; Editing by Shri Navaratnam)
