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Dollar Steady as US Inflation Data Takes Spotlight

The dollar remained stable against major counterparts on Monday as investors awaited U.S. inflation data to gauge the likelihood of interest rate adjustments later this year.

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Following a softer-than-anticipated U.S. payrolls report for April and a seemingly dovish Federal Reserve policy announcement earlier this month, expectations for rate cuts in 2024 have heightened.

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Market sentiment reflects a 61.2% probability of some level of rate reductions commencing at the Fed’s September meeting, with an anticipated total of approximately 50 basis points of cuts, as indicated by CME’s FedWatch Tool.

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However, commentary from Fed officials last week varied, with discussions revolving around whether current interest rates are sufficiently high. Additionally, an increase in consumers’ inflation expectations, evidenced in a recent survey, may complicate the discourse further.

Against a backdrop of slowing economic indicators, investors await confirmation of the persistence of inflationary pressures.

This week presents an opportunity for the market to assess inflation dynamics, with the release of the producer price index (PPI) on Tuesday followed by the consumer price index (CPI) on Wednesday.

Matt Simpson, senior market analyst at City Index, noted, “If inflation data ticks higher again this month it will surely undo the work of softer growth and slightly weaker employment figures.”

The dollar index, gauging the greenback against a basket of currencies, remained unchanged at 105.31, following its first weekly gain last week after two consecutive weeks of decline.

Carol Kong, a currency strategist at the Commonwealth Bank of Australia, emphasized the significance of this week’s CPI data in informing the Federal Open Market Committee’s (FOMC) decision on rate adjustments in September.

Meanwhile, market participants remain attentive to the yen amid ongoing concerns about potential currency intervention by Japanese authorities.

Against the yen, the dollar maintained strength at 155.80, following a recent uptrend triggered by concerns over intervention after two suspected incidents earlier in the month.

In cryptocurrencies, bitcoin experienced a modest increase of 0.68% to $60,889.51.

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