The US dollar was slightly lower on Tuesday (May 14) after an initial jump following an unexpected increase in US producer prices in April that indicated inflation remained elevated early in the second quarter.
The producer price index for final demand rose 0.5 per cent last month after falling by a downwardly revised 0.1 per cent in March, the Labor Department’s Bureau of Labor Statistics said on Tuesday.
The dollar index, which measures the US currency against six rivals, was down 0.05 per cent at 105.12. The euro was up 0.14 per cent against the dollar at 1.080. The dollar strengthened against the yen, up 0.23 per cent at 156.60.
Traders are awaiting the US consumer price index (CPI), scheduled for Wednesday, to gauge what path the Federal Reserve will take this year in the wake of recent softer-than-expected US labour market data and comments from officials that indicated the central bank was unlikely to raise rates further.
Money markets have dialled back their expectations of Fed rate cuts this year due to sticky inflation and are now pricing in about 40 basis points of easing this year, compared with 150 bps of cuts anticipated at the start of 2024. They are also pricing in a first rate cut, with about a 50 per cent chance, only in September, according to the CME FedWatch tool.
US inflation this week is expected to show that core consumer prices rose 0.3 per cent month on month in April, down from a 0.4 per cent growth the prior month, according to a Reuters poll.
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“US inflation data for April (is) likely to be the most important data point of the week, especially after the market has reacted sensibly on rather weak US data recently, increasing its rate cut expectations somewhat,” said Antje Praefcke, FX analyst at Commerzbank.
Traders are also closely watching the yen, down to May 1 levels, which then saw suspected interventions by Japanese authorities.
Japan’s Ministry of Finance is suspected to have intervened in the currency market at the end of April through early May after the yen hit a 34-year low of 160.245 on Apr 29.
But the market remains bearish on the currency given the massive gap between Japan’s ultra-low yields and those in other major economies.
Japan’s Finance Minister Shunichi Suzuki said on Tuesday the government will closely work with the Bank of Japan on the foreign exchange to ensure there is no friction between their mutual policy objectives.
Data showed on Tuesday that British wages grew by more than expected, but other figures suggested the labour market is losing some of its inflationary heat, keeping the BOE on alert about when to cut interest rates.
The Chinese offshore yuan was trading near a two-week low after US President Joe Biden on Tuesday unveiled a bundle of steep tariff increases on an array of Chinese imports including electric vehicles, computer chips and medical products.
The offshore yuan was last flat on the day at 7.2408, after falling earlier in the day to it lowest level since May 5.
China’s Commerce Ministry said the country is “strongly dissatisfied with US tariff hike”. REUTERS