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Dollar Maintains Stability as Traders Await Guidance on US Interest Rates

The dollar held steady on Monday as investors awaited further indications to navigate the trajectory of U.S. interest rates amid cautious remarks from Federal Reserve officials, despite signs of cooling inflation.

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Meanwhile, the Japanese yen started the week on a slightly weaker note, hovering around 155.80 per dollar as traders monitored for any signs of government intervention. The currency has exhibited narrow fluctuations over the past few trading sessions.

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Recent data indicating a moderation in U.S. consumer prices for April prompted markets to price in the possibility of 50 basis points (bps) or at least two rate cuts this year. However, various Fed officials have adopted a cautious tone regarding the timing of potential rate adjustments.

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Consequently, traders are currently betting on approximately 46 bps of easing this year, with a rate cut in November fully priced in.

In early trading on Monday, the euro edged up by 0.07% to $1.087525, nearing the nearly two-month high of $1.0895 reached last week. The dollar index, which gauges the U.S. currency against six major counterparts, remained largely unchanged at 104.46.

Attention will now shift to the release of the Personal Consumption Expenditures (PCE) price index report on May 31, considered the Fed’s preferred measure of inflation.

According to Brian Jacobsen, Chief Economist at Annex Wealth Management, the Fed may not have sufficient data by the June or July meetings to confidently justify rate cuts. However, he suggested that Fed Chair Powell could potentially outline their perspective during the Jackson Hole conference in August, setting the stage for a rate cut in September.

Additionally, market participants will closely scrutinize the minutes of the Fed’s latest meeting scheduled for Wednesday, alongside Flash PMI data for the eurozone, Germany, the UK, and the U.S. ING economists anticipate further commentary aligning with a “higher for longer” approach.

In other currency movements, sterling traded near a nearly two-month high reached on Friday at $1.2705, while the Australian dollar advanced by 0.14% to $0.6703. The New Zealand dollar remained relatively unchanged at $0.61315.

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