Dollar Steady as Asian Markets Close for Holiday, Focus Shifts to US Inflation Data

The dollar remains steady as investors eagerly await US inflation data this week, which could shed light on the Federal Reserve’s potential rate cuts. With most major Asian markets closed for the holiday, the dollar’s movement is somewhat subdued. The euro experienced a slight decline, while the pound remained flat against the dollar. The Japanese yen strengthened slightly as market participants anticipate the release of US Consumer Price Index (CPI) data for January on Tuesday. Market expectations regarding interest rate cuts and inflation trends play a crucial role in driving currency markets currently. Recent strong jobs data has alleviated concerns of an imminent rate cut by the Federal Reserve in March, with May being viewed as a more likely timeframe for action. Analysts predict that US core CPI will come in at 0.3% month-on-month in January, with a year-on-year figure of 3.8%. Despite the significance of Tuesday’s data, it is unlikely to trigger a significant decline in the dollar. On Wednesday, the release of British CPI inflation data will also impact opinions on when the Bank of England may commence interest rate cuts, with the institution currently lagging behind the Federal Reserve and the European Central Bank. Meanwhile, market observers are closely monitoring the Japanese yen, which experienced a substantial strengthening towards the end of last year as expectations of early US rate cuts were priced in. However, the yen has weakened as the timing of rate cuts has been pushed back. Japanese Finance Minister Shunichi Suzuki has expressed vigilance regarding foreign exchange (FX) movements. Analysts at Barclays anticipate intervention warnings to increase in frequency around the 150 level. The Japanese government previously intervened in late 2022 to support the yen when it weakened to 151.94 per dollar.