"The bar is high for a Fed response to data surprises in either direction," said Vishnu Varathan, head of economics and strategy at Mizuho Bank. "Having concluded 500 bps of rate hikes and anticipating some credit tightening from a shake-down amongst regional banks, the Fed is unlikely to tighten further on merely 'sticky' inflation, instead requiring re-acceleration of inflation." The Japanese yen was steady against the dollar at 135.25 and fell 0.1% against the euro to 148.075, while the Australian dollar fell 0.2% to $0.675. Bank of Japan (BOJ) Governor Kazuo Ueda said on Wednesday the central bank will debate an exit strategy from ultra-loose monetary policy and communicate it to the public once stable, sustained achievement of its inflation target approaches. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ World FX rates Euro bulls go all-in ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Additional reporting by Rae Wee in Singapore; Editing by Sharon Singleton, Kirsten Donovan)
(Updates prices)
By Amanda Cooper
LONDON, May 10 (Reuters) - The dollar seesawed on
Wednesday after U.S. President Joe Biden and top lawmakers made
no headway in the debt ceiling crisis, although volatility was
minimal ahead of inflation data that could be instrumental in
determining where interest rates head.
Biden and House of Representatives Speaker Kevin McCarthy
remained divided over raising the $31.4 trillion U.S. debt limit
following talks on Tuesday, with just weeks to go before the
United States may be forced into an unprecedented default.
The two, however, agreed to further talks and committed
their aides to daily discussions. Biden, McCarthy and the three
other top congressional leaders are set to meet again on Friday.
The dollar held onto most of Tuesday's gains, thanks to
another sharp rise in short-dated Treasury yields and to the
nervousness that prevailed over Wednesday's U.S. inflation data.
The euro was last down 0.1% at $1.0947, as was
sterling , which eased 0.1% to $1.2605.
Against a basket of currencies, the dollar index edged up 0.14% to 101.76, having earlier fallen by as much as
0.11%.
Economists polled by Reuters expect core consumer prices in
the United States to rise 5.5% on a year-on-year basis for the
month of April.
A stronger-than-expected reading could prove a headache for
the Federal Reserve, which just last week opened the door to a
pause in its aggressive tightening cycle, having delivered 10
consecutive rate hikes since March 2022.
"If there is one piece of data that could shift market
thinking it is the CPI report," MUFG head of research Derek
Halpenny said.
"Certainly, if there are upside surprises in more volatile
components today, the reaction may be more muted than in
previous CPI overshoots. Nonetheless, there must be a risk of a
further liquidation of stale euro/dollar long positions," he
said.
Speculators have built up the biggest bullish position in
the euro in over two years, according to weekly data from the
Commodity Futures Trading Commission. At $23 billion, it has almost trebled in six months. But
investors are already banking on the European Central Bank
having more scope to raise interest rates than the Fed, which
might prompt some paring back of those bullish bets.
Money markets are pricing in a roughly 80% chance that the
Fed will keep rates on hold at its next meeting in June, and
expect at least a couple of rate cuts to follow before the end
of the year. Rising expectations that the Fed will begin cutting rates
later this year have been driven by recent stress in the banking
sector following the collapse of Silicon Valley Bank in March.
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