Global Currencies: dollar operates sideways against rivals, waiting for US CPI

The dollar operated practically sideways against rival currencies this Monday, 12th, oscillating close to stability throughout the session. Investors are lining up for the release of the US consumer price index (CPI) tomorrow, looking for signs about the Federal Reserve's (Fed) next monetary policy steps.

At the end of the afternoon in New York, the dollar rose to 149.40 yen. The DXY index, which measures the dollar against a basket of six strong rivals, closed up 0.06%, at 104,170 points.

The dollar ended the day practically stable against other strong currencies. In a report, ING projects that the main catalyst for the American currency this week will be US consumer inflation data. For the bank, the dollar will face strong downward pressure if the data comes in below what the market expects.

Analysts consulted by Projeções Broadcast estimate that the CPI increased 0.2% in January compared to the previous month and 2.9% in the annual comparison, both representing a slowdown compared to December. Earlier, a survey by the NY Fed showed that American consumers practically did not change inflation expectations for the coming years.

Barclays recalls that the directors of the Federal Open Market Committee (FOMC) “are skeptical” that there are appropriate conditions for a sustained drop in inflation to the 2% target. Today, Fed Director Michelle Bowman reinforced this perspective by stating that she does not consider it “appropriate” to cut interest rates in the near future.

However, Barclays considers that, above the market repricing of Fed interest rates, the strength of the American economy appears to be the biggest catalyst for the dollar in 2024. “At the same time, elevated carry trade between some emerging markets and currencies where central banks remain hawkish can have a superior performance in this environment”, pointed out the bank, highlighting the Brazilian real, Mexican peso and the British pound, among other currencies.

Also in this session, the pound fell to US$ 1.2623, after the president of the Bank of England (BoE), Andrew Bailey, stated that “any recession in the United Kingdom will be superficial” and, therefore, should not be a cause for great concern.

The euro fell to US$ 1.0773, after directors of the European Central Bank (ECB) signaled the possibility of interest rate cuts this year, although none of them indicated precisely the appropriate moment for the relaxation to begin.

In an interview with Econostream Media, Pierre Wunsch said the ECB will not wait “a full year” to be completely sure about wage pressures before cutting rates, arguing that the risks of cutting rates rather than waiting are not great. Piero Cipollone also stated that there is no need to create more space to control inflation, in a speech to the European Parliament. More cautious, Pablo Hernández de Cos reinforced the dependence on data and pointed out that March projections will be “crucial” to decide the appropriate time to start interest cuts.