Dollar's Advance Stalls Amid Benign US Inflation
The dollar's advance has stalled due to benign US inflation readings, which have reduced bets for a near-term Federal Reserve interest rate hike.
According to CME Group's FedWatch, the odds of a September rate hike are now at 40%, down from 54% a week ago, following the release of July's US consumer price data, which showed a 0.1% increase in line with economists' expectations.
Currency strategist Michael Wan at MUFG noted that the Fed is now facing a dilemma in weighing inflation risks against a softening labour market, particularly after last Friday's weaker-than-expected July payrolls report.
The dollar index was flat at 100 on Thursday but is still on track for a 0.4% weekly rise. The greenback was little changed against the yen and remained near the 160 level, which some market participants see as a line in the sand following the joint US-Japan intervention at the end of July.
Shusuke Yamada, head of Japan FX/rates research at Bank of America, noted that investors can only judge the authorities' commitment to defending the yen through dollar-yen price action and policy response. A break above 160 would likely be interpreted as a sign of limited policy resolve, while successful intervention pushing USD/JPY below 155 would have strengthened perceptions of strong commitment.