NEW YORK: The dollar edged up against the yen and down against the euro on Wednesday but market moves were muted before the Federal Reserve is due to release minutes from its latest meeting and as investors wait on fresh data for further clues on Fed policy.
Better than expected consumer and producer price inflation last week and weaker than expected retail sales offered a mixed view on the strength of the US economy, with possible seasonal adjustments also clouding the picture.
The stronger than expected inflation data has raised the possibility that the Fed could hold rates higher for longer, or even make further hikes if it continues. However, the retail sales numbers and other data have also been showing some signs of weakness, which has sent the greenback lower over the past week.
“There is still enough of a question mark with respect to incoming data and as a result we’ve seen the dollar come under a bit of pressure,” said Bipan Rai, North American head of FX strategy at CIBC Capital Markets in Toronto, adding that “this is really a data driven environment.”
Minutes on Wednesday from the Fed’s January 30-31 meeting will be evaluated for any fresh clues on Fed policy.
Fed Chair Jerome Powell said after the meeting that interest rates had peaked and would move lower in coming months, with inflation continuing to fall and an expectation of sustained job and economic growth.
However, since then Powell and other Fed policymakers “have been pushing back on rate cut expectations, particularly given last week’s hotter-than-expected inflation data” said Fiona Cincotta, Senior Financial Market Analyst at City Index.
Fed funds futures traders are pricing in the probability that the Fed will most likely begin cutting rates in June.
The dollar index was last down 0.02% at 104.02, after reaching 103.79 on Tuesday, the lowest since Feb. 2.
The euro gained 0.07% to $1.0811 and the greenback rose 0.06% to 150.08 Japanese yen.
Sterling was last up 0.03% at $1.2620 after figures showed Britain chalked up its highest ever monthly budget surplus in January ahead of finance minister Jeremy Hunt’s annual budget in March.
“The ‘record’ surplus does not mean that the UK is firing on all cylinders and generating cash significantly faster than before. The surplus was lower than expected,” said Kathleen Brooks, research director XTB.
“Economic growth is still likely to remain sluggish, so today’s data is unlikely to factor into the BOE’s decision on when to cut rates”.
In cryptocurrencies, bitcoin slid 2.17% to $50,901.
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