Currency Market Is Calm Before the Release of US Economic Data

The currency market was calm on Thursday, with the US dollar holding steady vs its major peers while investors eagerly awaited the release of new economic data from the largest economy in the world, hoping to get some indication of the Federal Reserve’s policy stance.

The latest higher-than-expected U.S. consumer price index (CPI) data has sparked renewed worries about ongoing inflation, leading traders to reassess the possibility that the Federal Reserve would lower interest rates during its June meeting, as was previously predicted.

LSEG’s rate likelihood app shows that while market sentiment still points to a 65% chance of a rate drop in June, this number has somewhat decreased from 71% earlier in the week. In the meanwhile, there is still a good chance of a rate drop in July—about 83%.

The announcement of the bank’s new economic estimates is keenly anticipated by investors, as it is largely anticipated that the Federal Reserve would hold interest rates at its scheduled meeting next week.

“The data is driving marginal changes in rate expectations, but ultimately, the markets have been pretty settled on three cuts this year,” said Kyle Rodda, senior financial market analyst at Capital.com. He went on, describing a possible positive scenario for the US currency, saying, “A more hawkish Fed could lower that to two (rate cuts) and defer expectations for the first to September.”

At 102.77, the dollar index, which measures the value of the US dollar against a basket of six other currencies, stayed largely steady.

In an effort to obtain more information on the rate of the economic downturn, the market is focusing on the producer pricing index (PPI) report, the unemployment claims data, and the upcoming U.S. retail sales data, which are all slated for release later on Thursday.

Last week, Jerome Powell, the chair of the Federal Reserve, said that the US central bank was “not far” from gaining the trust required to start relaxing policies.

The dollar held steady at 147.69 yen versus the Japanese yen as anticipation about the Bank of Japan’s monetary policy meeting on March 18–19, especially over the possible removal of negative interest rates, intensified.

The Bank of Japan may consider eliminating negative rates next week, according to people familiar with the situation who spoke with Reuters. This will happen if significant results from big enterprises’ wage discussions are obtained.

The first outcomes of the spring salary discussions, which are set to take place on Friday, are expected to generate much anticipation. According to preliminary reports, a number of well-known Japanese corporations have committed to completely implementing the wage requests of the unions.

In other news, the euro held onto its $1.0949 spot versus the US dollar ahead of expected statements made by a number of European Central Bank officials on Thursday.

At $1.2796, the British pound showed steadiness. According to recent data, the British economy recovered in January following a brief recession in the second part of 2023.

Within the cryptocurrency space, bitcoin saw a little decrease of 0.28%, ultimately closing at $72,950.00, having reached a record high of $73,678 during the previous session. Ether had a 0.03% decline as well, coming in at $3,991.00.

The currency market stays reasonably calm ahead of the publication of important U.S. economic data, as investors keep a tight eye on events for any changes in the dynamics of the market.