Anna 
The dollar remained steady against major counterparts on Monday, with investors awaiting U.S. inflation data to gauge the potential for interest rate adjustments this year.
Following a softer U.S. payrolls report for April and a seemingly dovish Federal Reserve policy announcement earlier this month, expectations have risen for rate cuts in 2024.
According to CME’s FedWatch Tool, markets have priced in a 61.2% probability of rate reductions starting at the Fed’s September meeting, with approximately 50 basis points of cuts expected in total.
However, comments from Fed officials last week varied as policymakers debated the adequacy of current interest rates. A rise in consumers’ inflation expectations, revealed in a recent survey, could complicate this discussion further.
As recent data suggests economic slowdown, investors are eager to determine the persistence of inflationary pressures.
The upcoming week will provide clarity with key inflation readings, including the producer price index (PPI) on Tuesday and the consumer price index (CPI) on Wednesday.
“For the U.S. dollar to see significant weakness, incoming data needs to signal disinflation, not just isolated weaknesses,” said Matt Simpson, senior market analyst at City Index.
“If inflation data increases again this month, it could counteract the impact of softer growth and slightly weaker employment figures.”
The dollar index, gauging the greenback against a basket of currencies, was unchanged at 105.31 after registering its first weekly gain last week following two consecutive weeks of decline.
This week’s CPI figures will play a pivotal role in the Federal Open Market Committee’s (FOMC) decision on rate adjustments in September, according to Carol Kong, a currency strategist at the Commonwealth Bank of Australia (OTC:CMWAY).
“A strong CPI this week will leave the FOMC with four more monthly CPI reports before the September meeting. Four benign CPI readings may not give the FOMC sufficient confidence to commence rate cuts in September.”
Federal Reserve Chair Jerome Powell is scheduled to speak on Tuesday at a meeting of the Foreign Bankers’ Association in Amsterdam.
Intervention Concerns in Focus
Amid anticipation of the U.S. CPI release, currency markets are also monitoring the yen closely due to ongoing risks of currency intervention by Japanese authorities.
Against the yen, the dollar held firm at 155.80 after touching its highest level since May 2 at 155.965.
The dollar has rebounded against the yen after a 3% decline at the beginning of the month, its largest weekly percentage drop since early December 2022, following suspected interventions.
The currency’s recent strength against the yen has prompted some short-term reversal in sentiment among yen bears.
Data from the CFTC showed a sharp decline in non-commercial short positions in yen futures from April 23, reaching the highest level since June 2007.
The yen received support on Monday after the Bank of Japan sent a hawkish signal by reducing its offer amount for a segment of Japanese government bonds during Asian trading.
In other currency movements, the euro was largely unchanged at $1.07695 ahead of the euro zone’s inflation report due on Friday.
