Dollar Stalls as Traders Cut Bets on Fed Hike Amid US Inflation Data
The US dollar has stalled after the release of benign inflation data in the United States. This has led to traders cutting their bets on a September Federal Reserve interest rate hike, with the odds of such an event now standing at 40% according to CME Group's FedWatch.
Michael Wan, a currency strategist at MUFG, believes that the Fed is facing a dilemma between addressing inflation risks and a softening labor market. He notes that the FOMC is likely to maintain a restrictive holding pattern in September rather than pivot towards a hike.
The dollar has changed hands at 159.35 yen, close to the 160 level which some market participants see as a line in the sand following the joint US-Japan intervention that pulled the exchange rate down from near a four-decade peak of around 164 to 155.20 over three days.
Shusuke Yamada of Bank of America suggests that a break above 160 would likely be interpreted as limited policy resolve, while successful intervention that pushes USD/JPY below 155 would strengthen perceptions of strong commitment.