THE dollar turned higher on Tuesday (Feb 13), hitting 150 against the yen for the first time since November, after data showed US inflation rose more than expected in January, reinforcing expectations that the Federal Reserve will hold interest rates in March.
The Consumer Price Index (CPI) rose 0.3 per cent on a monthly basis in January, above the 0.2 per cent increase expected by economists polled by Reuters. On a year-on-year basis, it gained 3.1 per cent versus the 2.9 per cent estimated growth.
The greenback surged to 150.34 yen, the highest since November. It was last up 0.6 per cent at 150.305 yen.
The dollar index turned positive after the data, and was last up 0.4% at 104.59.
The pound rose to an almost six-month high against the euro after stronger-than-forecast wage data.
The Swiss franc dropped to multi-week lows versus the euro and dollar after lower-than-forecast consumer prices spurred rate cut bets.
The yen, which has tumbled more than 5 per cent against the dollar year-to-date, is under persistent pressure as investors pare back their expectations of the scale and pace of the Federal Reserve’s easing cycle.
Yen bears are also being emboldened by signs the Bank of Japan will resist aggressively hiking rates even if it exits negative interest rates this year as markets are wagering.
“The rate spread convergence that lifted the yen late last year is being unwound as markets recalibrate expectations in response to a surprisingly resilient US economy and receding prospects of a near-term BOJ hike,” said Kyle Chapman, FX markets analyst at Ballinger and co.
Sterling hit its strongest level in almost six months at 85.03 pence per euro even as British pay grew at the slowest pace in more than a year, the slowdown was less strong than most analysts had forecast and Britain’s jobless rate unexpectedly fell.
The pound also rose 0.3 per cent against the dollar to US$1.2662.
“Labour data in the UK came in stronger than expected allowing GBP-USD to further rebound,” said Roberto Mialich, FX strategist at UniCredit.
“A pickup in UK CPI-inflation is also expected for January, which might keep sterling further firm,” he added. January inflation data is released on Wednesday.
Meanwhile, a large decrease in headline inflation in Switzerland sent the franc to multi-week lows against the dollar and euro, prompting a slew of rate cut bets as early as March.
“The numbers released today reinforce our view that the SNB will be the first G10 central bank to cut rates in this monetary policy cycle,” said Capital Economics Europe economist Adrian Prettejohn, who has pencilled in a cut at next month’s meeting.
The franc was down as much as 0.7 per cent to 0.8815 per dollar, its weakest since Dec 11, and to 0.9493 per euro, its weakest since Dec 18.
Elsewhere, the euro was flat against the greenback at US$1.0774, while the Aussie and kiwi fell both fell 0.2 per cent against the US currency.
A recent run of resilient economic data in the United States, particularly a blowout jobs report this month, has heightened expectations that US rates are likely to stay higher for longer.
Markets are now pricing in just about 110 basis points of rate cuts from the Fed this year beginning in May, down from about 160 bps at the end of last year.
In cryptocurrencies, bitcoin touched its highest since December 2021 at $50,383 and steadied above US$50,000 for a second day running.
The world’s largest cryptocurrency has risen nearly 18 per cent this year, helped by last month’s regulatory nod for US-listed exchange traded funds (ETFs) designed to track its price. REUTERS