Dollar Firm as US CPI Data Emerges; Hawkish BOJ policymakers interrupt the yen’s decline by Reuters

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By Brigid Riley

TOKYO (Reuters) – The dollar was largely steady on Thursday as traders kept their powder dry ahead of next week’s U.S. inflation data and what it could mean for Federal Reserve policy, while hawkish views from Bank of Japan members the yen helped slow its fall.

Against the Japanese yen, the dollar has been slowly rising in recent days after falling more than 3% last week, its biggest weekly percentage decline since early December 2022.

But the yen found some support in the BOJ’s summary of opinions released Thursday, which showed board members were overwhelmingly hawkish at their April policy meeting, with many calling for steady rate hikes.

“The BOJ appears to be hinting at the next rate hike, which could come in June or July once the final results of the wage negotiations are announced,” said Charu Chanana, head of currency strategy at Saxo.

However, the yen’s rise was short-lived as the market was decidedly bearish on the currency.

Last week’s Fed policy meeting and the downside surprise in US job growth have led markets to expect two rate cuts this year. But a gap remains between Japan’s ultra-low interest rates and those in the United States.

“The market is not really worried about the Fed’s sudden turn. So in that sense the market is biased against the dollar/yen,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.

With traders still wary of possible currency interventions by Tokyo, the dollar/yen is likely to remain within the 155-160 range, he added.

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Market players suspect Tokyo spent about $60 billion last week to counter the yen’s decline after it hit its weakest in 34 years against the dollar around 160 yen.

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Japan’s top currency diplomat Masato Kanda reiterated a warning Thursday that Tokyo is ready to take action in the currency market.

The Japanese yen was largely flat at 155.57 per dollar.

RATE PATHS IN FOCUS

Market attention will soon shift to the April US Producer Price Index (PPI) and Consumer Price Index (CPI), due to be released next week. Traders will be watching for signs that inflation has resumed its downward trend toward the Fed’s 2% target rate.

“This is a make-or-break report for the Fed as a new publication questioning the disinflation narrative could jeopardize their credibility,” Saxo’s Chanana said.

Fed Bank of Boston President Susan Collins said last night that the US economy needs to cool to bring inflation back to target.

The , which measures the dollar against a basket of currencies, was unchanged at 105.51.

Sterling was steady at $1.24975 ahead of the Bank of England’s policy decision later on Thursday.

The BOE is likely to take another step toward its first rate cut in four years as inflation falls.

The big question for investors is whether the BOE is suggesting a cut could happen in June – while the European Central Bank has already indicated it will cut borrowing costs.

The euro remained at $1.0748.

Elsewhere, China’s was slightly higher at 7.2257 after data showed Chinese exports and imports returned to growth in April after contracting the previous month.

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That could potentially delay the interest rate cuts that some say China would need to make to meet its 2024 GDP target.

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In cryptocurrencies, bitcoin last rose 0.09% to $61,618.12.

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