Dollar Holds Steady Amid Persistent Inflation Concerns

The U.S. dollar remained stable at the start of the week, following revelations last week that persistent inflation might delay the Federal Reserve’s anticipated easing cycle. Meanwhile, the Japanese yen stayed near the critical 150 per dollar threshold, amidst speculation of potential intervention by Japanese authorities to curb its decline.

In recent trading, the yen saw a modest improvement of 0.20 percent to 149.94 against the dollar, despite a yearly decrease of 6 percent. Against the euro, the yen approached three-month lows at 161.925. Japanese Ministry of Finance officials have signaled readiness for intervention to stabilize the currency, hinting at potential actions beyond their usual trading hours.

The dollar index, a measure against a basket of six major currencies, slightly dropped by 0.058 percent to 104.14, continuing its previous five weeks of gains, and marking a 3 percent increase for the year.

This stability comes in the wake of data indicating higher-than-expected U.S. producer and consumer price rises in January, suggesting inflation remains a challenge. This situation potentially pushes back the Federal Reserve’s timeline for reducing interest rates, with market predictions now favoring a June start for easing, a shift from earlier expectations of March.

Strategists from Citi highlighted last week’s data as evidence against the possibility of a gentle economic landing, pointing out the continuing challenges posed by declining retail sales and rising jobless claims. They argue that persistent inflation complicates the Fed’s ability to lower rates, thereby increasing the likelihood of a recession.

This week, attention turns to the minutes from the last Fed meeting, due for release on Wednesday, and speeches by Federal officials, which may provide further insights into the central bank’s policy direction.

The euro and sterling saw modest gains against the dollar, with the euro up 0.12 percent at $1.0787 and the sterling increasing by 0.21 percent to $1.2624. Recent UK retail sales data provided a temporary boost to the pound, though it has had limited impact on altering expectations for the Bank of England’s monetary policy, with markets anticipating cuts.