US dollar rises, yen falls amid lower expectations of interest rate cuts

US dollar rose on Thursday after higher-than-expected US inflation data dampened remaining expectations for the Federal Reserve to start a cycle of cutting interest rates in June, and the yen also fell to mid-1990 levels.

According to Reuters, investors’ focus is now on US producer price data and the European Central Bank’s monetary policy meeting later on Thursday.

The yen’s decline to a 34-year low of 153.24 against the dollar on Wednesday revived fears of government intervention, as authorities in Tokyo reaffirmed that they would not rule out taking any steps to deal with excessive currency fluctuations.

Japan intervened to support the currency three times in 2022, when the yen fell towards what was then a 32-year low of 152 yen to the dollar.

On Thursday, the yen rose 0.17% to 152.93 per dollar. This is slightly lower than the level of 153.24 that it touched on Wednesday after data showed that the consumer price index in the United States rose 0.4 percent on a monthly basis in March, compared to a 0.3 percent increase expected by economists polled by Reuters.

The yen has fallen approximately eight percent against the dollar this year, as the currency has remained near the level of 151 against the dollar since the Bank of Japan decided last month to end the work of negative interest rates that have been in place for eight years.

After the release of inflation data in the United States, traders significantly reduced their bets on lowering interest rates this year, in addition to the timing of the start of the US Central Bank’s monetary easing cycle.

Adding to those doubts, the minutes of the US central bank’s March meeting released on Wednesday showed that policymakers were already disappointed by recent inflation data before the latest report.

According to the CME Group’s Fed Watch tool, markets now expect 18% of the US Federal Reserve to cut interest rates in June, compared to 50% before the CPI data, with September becoming the next starting point for interest rate cuts.

Traders currently expect interest rates to be reduced by 43 basis points this year, much less than the 75 basis points expected by the US Central Bank. At the beginning of the year, traders expected a cut of more than 150 basis points in 2024.

The inflation report sent US Treasury yields higher and the dollar index, which measures the US currency’s performance against a basket of six rival currencies, rose more than 1% on Wednesday to approach a five-month high of 105.30. The index last traded at 105.15 on Thursday.

The rise in the dollar led to the Chinese yuan falling to its lowest levels in five months, despite the central bank’s efforts to push it higher.

Euro recorded $1.07465 in recent transactions, after it fell by one percent on Wednesday before the monetary policy decision expected on Thursday from the European Central Bank. The ECB is expected to keep interest rates unchanged but is likely to indicate that a rate cut could begin as soon as June.

British pound recorded $1.2548, rising 0.07% during the day, Thursday. The Australian dollar rose 0.14% to $0.6522, and the New Zealand dollar rose 0.17% to $0.59835.