By Tom Westbrook
SINGAPORE (Reuters) – Major currencies held on to gains against a dollar on Thursday hit by softer-than-expected U.S. inflation, with the exception of the yen which remained under pressure ahead of a Bank meeting or Japan, as US policymakers indicated that interest rates would be kept high for years to come. for a while yet.
Overnight, the euro rose 0.6% to rise above its 200-day moving average, last buying at $1.0804. The dollar was at $0.6647 after rising above $0.67 overnight, and the New Zealand dollar jumped to a five-month high above $0.62 before settling at $0.6170 . The yen fell by about 0.2%.
Gains had been stronger in the immediate aftermath of the US inflation report, which showed consumer prices flat month-on-month in May, despite market expectations of a 0.1% rise.
They were softened when the Federal Reserve left interest rates unchanged at 5.25-5.5% and policymakers’ average forecast for the number of cuts this year fell to just one from three in March.
Sterling rose 0.5% overnight to $1.2798, falling slightly lower as European markets opened. Movements in trading in Asia were modest, although beaten down currencies such as the Indonesian rupiah saw some relief.
Despite the Fed’s predictions, markets continued to price nearly two 25 basis point rate cuts this year.
“I think markets are looking at the US dollar as weakening, with swings in between,” Westpac strategist Imre Speizer said in Auckland. “That is (largely) due to Fed rate cuts, which are still priced in for this year.”
was steady at 7.2660 in offshore trading after gaining slightly against the dollar overnight.
Fed Chairman Jerome Powell struck a familiar tone at his news conference, emphasizing that policymakers would be sensitive to economic data. Although fewer cuts were forecast for this year, policymakers had planned them for 2025 or 2026.
“While the view on a rate cut was more aggressive than in March, we think the details temper that hawkishness,” said John Velis, Americas macro strategist at BNY, noting that 8 of 19 policymaker forecasts were for two rate cuts this year .
Still, it was cold comfort for the yen, which is struggling with downward momentum amid the gap between Japan’s near-zero yields and much higher short-term US rates.
The Bank of Japan concludes a two-day policy meeting on Friday and markets are expecting an announcement or signal that the bank will scale back massive bond purchases to allow for further increases in Japanese yields.
That makes the yen vulnerable to disappointment. The rate was last shaky at 157.08 per dollar and on the back foot – where it hit a 17-year low of 97.06 overnight and a 16-year low of 200.91 for the pound sterling.
“We expect the BOJ to fall short of those expectations, which could push Japanese yields and the yen lower,” said Kristina Clifton, senior currency strategist at Commonwealth Bank of Australia (OTC:).
“Communications from BOJ officials indicate that it wants to take time to readjust its policy settings.”
