Asian session review: the US dollar consolidated against the major currencies

During today's Asian trading, the US dollar was almost unchanged against major currencies, as investors were cautious ahead of the release of US inflation data.

The US Dollar Currency Index (DXY), which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona) rose by 0.05% to 105.27. Investors are trying to assess what the Fed will do this year against the background of recent softer than expected data on the labor market and comments from policymakers, which indicate that the Central Bank is unlikely to raise rates in the future. Investors are now pricing in 42 basis points of easing this year, compared with 150 bps of easing anticipated at the start of 2024. According to the CME FedWatch Tool, markets see a 3.5% probability of a 25 basis point rate cut at the Fed meeting in June, a 25.4% probability of a rate cut in July, and a 61.2% probability of monetary policy easing in September. However, these expectations may change dramatically after the release of inflation data - the producer price index will be presented today, and the consumer price index will be published tomorrow. Economists expect producer prices to rise by 2.2% per annum in April compared with +2.1% in March, while the CPI jumped by 3.4% per annum, slowing compared to March (+3.5%). Experts warn that a softer CPI will reignite market expectations of a July rate cut, weighing on the dollar.

The yen fell another 0.2% against the US dollar, hitting a 2-week low, which increased concerns about new interventions by the Japanese government. But market participants remain bearish on the yen, given the huge gap between bond yields in Japan and other major economies. Meanwhile, Japanese Finance Minister Suzuki said on Tuesday that the government will work closely with the Bank of Japan on currency issues to ensure there are no disagreements between their common policy goals.

The pound consolidated against the US dollar, while investors analyzed data on the UK labor market. The Office for National Statistics (ONS) said that from January to March 2024, the unemployment rate (for those aged 16 years and over) increased by 0.1% compared to the previous three-month period, and amounted to 4.3% (the highest value since July 2023). Economists also expected unemployment to rise to 4.3%. The ONS said that in March, payrolled employees fell by 5,000 (0.0%) compared to February, but increased by 288,000 (+1.0%) year-on-year. The claimant count for April increased by 8,900 on the month and by 29,300 on the year, to 1.579 million. Economists had expected an increase of 13,900. The data also showed that from January to March, the growth in average total pay (including bonuses) and regular pay (excluding bonuses) was 5.7% per annum (+5.7% in the previous three months) and 6.0% per annum (+6.0% in the previous three months). Economists had expected an increase by 5.3% and 5.9%, respectively. Adjusted for inflation, wage growth in real terms increased 1.7% for total pay and 2.0% for regular pay.