The dollar sought to find a bottom in holiday-thin trading on Tuesday amid signs that inflation in the world's largest economy is cooling, which could give the Federal Reserve room to cut interest rates next year.
Meanwhile, the yen held steady near its recent five-month high as the Bank of Japan (BOJ) may soon end its ultra-easy policy. This policy has kept the yen under pressure throughout much of 2022 and 2023 as other major central banks around the world embark on aggressive interest rate hike cycles.
Currency movements were largely calm on the day after Christmas, with markets in Australia, New Zealand and Hong Kong still closed for the Boxing day public holiday.
As of 09:50 Beijing time, the euro rose 0.06% against the dollar to $1.1017, not far from the more than four-month high of $1.1040 hit last week.
AUD/USD was up 0.06% at $0.6806, with the Australian and New Zealand dollars hovering near recent five-month highs.
Data released last Friday showed that the U.S. price index fell for the first time in more than three and a half years in November, pushing the annual inflation rate further below 3% and boosting market expectations for an interest rate cut by the Federal Reserve in March next year.
A week ago, Federal Reserve policymakers opened the door to a rate cut in 2024 at their final policy meeting of the year, a move that weighed on the dollar.
Wells Fargo (NYSE: WFC ) analysts said in a note: "The Fed has made considerable progress on inflation, with core inflation moving closer to 5% at the start of the year, although it is still ensuring that inflation continues to move toward 2%. The Fed’s work is not done yet in terms of moving toward its % target.”
The yen rose 0.1% against the dollar to 142.20 yen per dollar, further supported by comments from Bank of Japan Governor Kazuo Ueda, who hinted at the possibility of a policy shift.
Ueda said on Monday that the likelihood of achieving the central bank's inflation target was "gradually rising" and that the central bank would consider changing policy if prospects for sustained 2 percent growth were "sufficient," although he said the BOJ had not yet decided to change its ultra-loose monetary stance. specific time.
Alvin Tan, head of Asia FX strategy at RBC Capital Markets, said: "BoJ Governor Ueda did not provide any policy guidance in his speech yesterday, although he expressed confidence that Japan will eventually emerge from low inflation. There is hope in the environment.”
A series of data released on Tuesday showed Japan's unemployment rate in November was unchanged from the previous month at 2.5%, while business-to-business (b2b) services inflation was steady at 2.3%.
