Dollar Weakens as Market Shrugs Off Inflation Revision Data
Market Reaction to Inflation Revision Data
The dollar eased on Friday, heading for a fourth week of gains, as traders reduced their bets on the Bank of Japan raising interest rates and the Federal Reserve cutting them. The market shrugged off revised U.S. monthly consumer prices that rose less than initially estimated in December. The mixed picture did not alter the market’s outlook on the timing of Fed rate cuts. The annual revisions published by the Labor Department showed the consumer price index (CPI) increasing slightly more than previously reported in October and November. Despite this, the revisions are unlikely to prompt the Fed to cut rates.
Market Analysis and Outlook
According to Steven Ricchiuto, U.S. chief economist at Mizuho Securities USA LLC, the market is in a hurry, but the Fed is not. Fed officials have signaled that there is no pressing need to cut rates. The message has given the dollar an extra tailwind, pushing the yen to a 10-week low as traders reduced bets on how quickly the Bank of Japan might raise rates. BOJ Governor Kazuo Ueda mentioned that there was a high chance for easy monetary conditions to persist even after the central bank ends its negative interest rate policy. Meanwhile, traders have all but ruled out a cut at the Fed’s next policy meeting in March, versus a chance of 65.9% a month ago, according to CME Group’s FedWatch Tool.
Effect on Currency Markets
Amidst these developments, the dollar fell 0.07% to 104.04, while the euro was up 0.08% to $1.0785. Sterling rose 0.15% to $1.2635. Both the euro and the pound have been relatively resilient this week, with officials from the European Central Bank and Bank of England pushing back against market wagers on early rate reductions. The Swiss franc weakened to 0.8747, with the dollar up about 0.93% on the safe haven currency this week as traders digested data suggesting the Swiss National Bank could be intervening in markets to weaken the franc. The yen was little changed at 149.32 per dollar after trading at 149.575 earlier, its weakest since Nov. 27. It is heading for about a 0.64% slide this week, having fallen in value in five out of the last six weeks.
Other Market Movements
Bitcoin rose 4.9% to $47,549.00, after earlier hitting a high of $48,183. The next major scheduled U.S. data release is CPI for January on Tuesday.