Dollar firms with Fed in focus, yen slips back

The dollar held near recent peaks on Thursday, supported by expectations the U.S. Federal Reserve will continue to tighten policy aggressively as it tries to curb inflation, while the yen faltered after jumping sharply the day before, Reuters reported.
The dollar was up 0.28% against the yen at 143.58, having fallen 1% on Wednesday on news that the Bank of Japan had checked on exchange rates with banks – a possible preparation for yen buying.
The euro was back below parity against the dollar, down 0.15% at $0.99635, not too far from its 20-year low of $0.9864 hit last week, while sterling likewise was 0.26% softer at $1.15115.
This left the dollar index firm at 109.84, holding onto its 1.5% gain from Tuesday, when U.S. inflation data came in hotter than expected. That caused markets to reposition for a Fed seemingly left with little choice but to go for another large hike at its rate-setting meeting next week.
Fed funds futures are now pricing in around 30% chance that the Fed will hike rates by 100 basis points, and a 70% chance of a 75 basis point increase.
Traders will be watching U.S. retail sales and industrial production data due later in the day, since, as ING analysts note, data is the most likely thing to cause a dovish repricing.
The Fed, in recent months, has been unwilling to push back on hawkish market expectations.
The dollar held near recent peaks on Thursday, supported by expectations the U.S. Federal Reserve will continue to tighten policy aggressively as it tries to curb inflation, while the yen faltered after jumping sharply the day before.
The dollar was up 0.28% against the yen at 143.58, having fallen 1% on Wednesday on news that the Bank of Japan had checked on exchange rates with banks – a possible preparation for yen buying.
The euro was back below parity against the dollar, down 0.15% at $0.99635, not too far from its 20-year low of $0.9864 hit last week, while sterling likewise was 0.26% softer at $1.15115.
This left the dollar index firm at 109.84, holding onto its 1.5% gain from Tuesday, when U.S. inflation data came in hotter than expected. That caused markets to reposition for a Fed seemingly left with little choice but to go for another large hike at its rate-setting meeting next week.
Fed funds futures are now pricing in around 30% chance that the Fed will hike rates by 100 basis points, and a 70% chance of a 75 basis point increase.
Traders will be watching U.S. retail sales and industrial production data due later in the day, since, as ING analysts note, data is the most likely thing to cause a dovish repricing.
The Fed, in recent months, has been unwilling to push back on hawkish market expectations.