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Dollar stable as traders await US rate policy updates

May 20, 2024

Key points:

  • Dollar index stable at 104.46; eyes on US PCE price index report due May 31.
  • USDJPY weakens slightly to 155.80; traders wary of potential government intervention.

The dollar held steady on Monday as investors anticipated further guidance on the U.S. interest rate trajectory following cautious remarks from Federal Reserve officials. Despite cooling inflation signs, traders are eagerly awaiting more data to gauge future rate cuts.

The Japanese yen (USDJPY) started the week on the back foot, weakening to 155.80 per dollar. This slight drop reflects traders’ anxiety over possible government intervention, especially as the yen has experienced tight trading ranges in recent days.

Chart displaying USD/JPY exchange rate at 155.723 with a trend of 0.09%, reflecting the Japanese yen's slight weakening to 155.80 per dollar. The chart features moving averages (MA) and KDJ indicators, highlighting traders' anxiety over possible government intervention as they await US rate policy updates. Image hosted by VT Markets, a forex CFDs brokerage.

Picture: USDJPY sees a slight drop on the VT Markets app.

Last week’s data revealed that U.S. consumer prices for April eased, leading markets to anticipate 50 basis points (bps) of rate cuts this year. However, various Fed officials have expressed caution about the timing of these cuts. Currently, traders are betting on about 46 bps of easing this year, with only a rate cut in November fully priced in.

On Monday, the euro (EURUSD) edged up 0.07% to $1.087525 in early trading, closely tracking the nearly two-month high of $1.0895 reached last week. The dollar index (DXY), which measures the U.S. currency against six rivals, remained steady at 104.46.

PCE price index report

The focus now shifts to the Personal Consumption Expenditures (PCE) price index report, the Fed’s preferred inflation gauge, due on May 31.

This week, markets will also scrutinise the minutes of the Fed’s last meeting, set to be released on Thursday, along with flash PMIs for the eurozone, Germany, the UK, and the U.S. A slew of Fed speakers, including Bostic, Barr, Waller, and Jefferson, are also on the calendar for Monday. 

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