Forex: Dollar skids to three-week low as US inflation data reinforces Fed pause view

First Republic Bank

13/06/2023 22:39

(Adds new comment, updates prices)

        * 
      U.S. headline CPI edges up 0.1% in May, while core rose 0.4%
    

        * 
      Rates markets raise odds of Fed pause on Wednesday to 93%
    

        * 
      ECB seen hiking rates in June and July
    

        * 
      BOJ will keep ultra-easy stance 
    

        * 
      Sterling hits five-week high vs dollar
    

        * 
      China's yuan falls to six-month low vs greenback
    

  
    By Gertrude Chavez-Dreyfuss
       NEW YORK, June 13 (Reuters) - The dollar dropped to a three-week low on Tuesday on news of the
smallest annual increase in inflation last month in more than two years, cementing expectations that the
Federal Reserve will pause interest rate hikes at its two-day meeting ending on Wednesday.
        The dollar index slid as low as 103.04 following the data, and was last down 0.3% at 103.29  =USD .
The euro rose 0.3% to $1.0793  EUR=EBS  after climbing to $1.0824, its highest since May 22.
  
    Against the yen, the dollar rose 0.4% to 140.17 yen  JPY=EBS .
    Tuesday's data showed the U.S. consumer price index (CPI) edged up 0.1% last month after increasing 0.4%
in April. In the 12 months to May, the CPI climbed 4.0%, the smallest year-on-year increase since March
2021, after rising 4.9% in April.
    So-called core CPI gained 0.4% in May, the same percentage rise for the third straight month.
        John Madziyire, senior portfolio manager at Vanguard, said in the wake of the CPI data, his firm has
"high conviction" that the Fed is going to pause on Wednesday.
  
        "Clearly before this meeting, there is evidence that the Fed has tightened quite a bit. Before the
bank crunch, the question was maybe we now have a higher terminal rate, or some sort of no-landing, or the
hikes are not being felt, and we may have to go significantly further," said Madziyire, referring to this
year's collapse of Silicon Valley Bank, Signature Bank and First Republic Bank.
  
        "But the fact that banks experienced some turmoil or mini-crisis tells us that we're getting to the
point where there is an impact from all these hikes. From the Fed's perspective, they want to give
themselves some time to assess, so that's why it's probably a skip, with some data dependency." 
  
    Traders of futures tied to the Fed's policy rate now expect a roughly 93% chance the U.S. central bank
will decide to forgo an 11th straight interest-rate hike and keep the benchmark rate at 5.00% to 5.25% on
Wednesday  FEDWATCH . Before the report, traders saw a 75% chance of a June rate increase.
    The rate futures market, however, trimmed bets on a Fed hike in July to a 64% probability, down from
more than 70% late Monday. 
    The European Central Bank's rate decision is up next on Thursday, with markets pricing in a 25
basis-point hike and another in July before a pause for the rest of the year.
    The Bank of Japan, due to announce a monetary policy decision on Friday, is expected to maintain its
ultra-dovish stance and yield curve control settings.
    Elsewhere, sterling jumped after employment data came in much stronger than expected, with wages rising
sharply, adding to inflation concerns.
    The pound  GBP=D3  hit a five-week high of $1.2625 against the dollar and was last up 0.8% at $1.2609,
as traders bet the Bank of England would have to raise rates further than previously expected.
    In Asia, China's yuan fell to a six-month low after the central bank lowered a short-term lending rate
for the first time in 10 months, in a bid to restore market confidence.
    The onshore yuan  CNY=CFXS  bottomed at 7.168 per dollar, its lowest since November, and last traded at
7.158, down 0.2%.
    Its offshore counterpart CNH=D3 weakened to a new six-month low of 7.178, before paring losses slightly.
    
========================================================
    Currency bid prices at 4:16PM (2016 GMT)
 Description      RIC         Last           U.S. Close  Pct Change     YTD Pct       High Bid    Low Bid
                                              Previous                   Change                   
                                              Session                                             
 Dollar index      =USD       103.2700       103.5800    -0.29%         -0.213%       +103.6200   +103.0400
 Euro/Dollar       EUR=EBS    $1.0793        $1.0757     +0.33%         +0.72%        +$1.0824    +$1.0760
 Dollar/Yen        JPY=EBS    140.1500       139.6150    +0.40%         +6.91%        +140.3000   +139.0100
 Euro/Yen          EURJPY=    151.25         150.17      +0.72%         +7.80%        +151.3700   +150.0400
 Dollar/Swiss      CHF=EBS    0.9052         0.9088      -0.37%         -2.08%        +0.9089     +0.9035
 Sterling/Dollar   GBP=D3     $1.2611        $1.2512     +0.79%         +4.27%        +$1.2625    +$1.2510
 Dollar/Canadian   CAD=D3     1.3312         1.3367      -0.40%         -1.74%        +1.3378     +1.3287
 Aussie/Dollar     AUD=D3     $0.6768        $0.6751     +0.24%         -0.73%        +$0.6807    +$0.6738
 Euro/Swiss        EURCHF=    0.9770         0.9777      -0.07%         -1.26%        +0.9795     +0.9755
 Euro/Sterling     EURGBP=    0.8557         0.8600      -0.50%         -3.25%        +0.8612     +0.8554
 NZ                NZD=D3     $0.6150        $0.6124     +0.36%         -3.21%        +$0.6178    +$0.6104
 Dollar/Dollar                                                                                    
 Dollar/Norway     NOK=D3     10.6450        10.8170     -1.54%         +8.52%        +10.8070    +10.6320
 Euro/Norway       EURNOK=    11.4841        11.6189     -1.16%         +9.44%        +11.6816    +11.4843
 Dollar/Sweden     SEK=       10.6946        10.8120     -0.84%         +2.76%        +10.8327    +10.6970
 Euro/Sweden       EURSEK=    11.5382        11.6357     -0.84%         +3.49%        +11.6509    +11.5442
 
    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
World FX rates    https://tmsnrt.rs/2RBWI5E
Dollar index June 13    https://tmsnrt.rs/3Nqx17q
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Harry Robertson in London and Rae Wee in
Singapore; Editing by Kirsten Donovan and Richard Chang)
 ((gertrude.chavez@thomsonreuters.com; 646-301-4124; Reuters Messaging:
rm://gertrude.chavez.reuters.com@reuters.net))