Dollar Softens as US Inflation Fails to Impress, Yen Braces for BOJ Meeting
In the aftermath of lackluster U.S. inflation figures, major currencies stood firm against a wavering dollar on Thursday. However, the yen remained under pressure as investors awaited an impending Bank of Japan (BOJ) meeting.
Currency Dynamics:
The euro surged by 0.6% overnight, surpassing its 200-day moving average and reaching $1.0804. Meanwhile, the Australian dollar briefly breached $0.67 overnight before settling around $0.6647, while the New Zealand dollar hit a five-month high above $0.62 before settling at $0.6170. Sterling enjoyed a 0.5% overnight rise to $1.2798 but experienced a minor decline as European markets opened.
Impact of US Inflation Report:
May’s U.S. consumer prices remained stagnant month-to-month, failing to meet market expectations. Despite this, the Federal Reserve opted to maintain interest rates, reducing the median projection for rate cuts this year from three to one.
Market Sentiment and Expectations:
Market participants continued to factor in nearly two 25-basis-point rate cuts despite the Fed’s updated projections. Fed Chair Jerome Powell underscored the Fed’s sensitivity to economic data, hinting at potential future adjustments. Nevertheless, the yen faced downward pressure due to the significant gap between Japanese rates and higher U.S. rates.
Bank of Japan Meeting:
The Bank of Japan is set to conclude its two-day policy meeting on Friday, with expectations high for announcements or signals regarding bond purchases and Japanese yields. The yen remained vulnerable ahead of the BOJ meeting, with potential market disappointment looming if the bank’s actions fall short of expectations.
Conclusion:
While the dollar weakened following tepid U.S. inflation data, major currencies held steady. However, the yen remained susceptible to market uncertainty ahead of the BOJ meeting, reflecting investor apprehension about potential policy adjustments.
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