The dollar fluctuates when trading on a thin layer; yen companies according to Reuters

© Reuters. PHOTO: US dollar bills are seen in this illustration taken on July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

Author: Rae Wee

SINGAPORE (Reuters) – The dollar struggled to find a bottom in holiday-softened trade on Tuesday, pressured by signs that inflation in the world’s biggest economy is cooling, likely to give the Federal Reserve room to cut interest rates next year.

Meanwhile, the yen settled near its recent five-month high on the view that the Bank of Japan (BOJ) could soon end its ultra-easy policy. For much of 2022 and 2023, this policy kept the Japanese currency under pressure as other major central banks embarked on aggressive rate hike cycles.

Currency movements were largely muted the day after Christmas as markets in the UK, Australia, New Zealand and Hong Kong, among others, were still off the bank holiday.

Against the greenback, the New Zealand dollar climbed to a fresh five-month high of $0.6325, while the Australian dollar similarly huddled near its recent five-month high, last bought at $0.6817.

The euro edged 0.03% higher at $1.1024, not too far from a five-month peak of $1.1040 reached last week, while the pound was little changed at $1.2706.

Data released on Friday showed U.S. prices fell in November from the previous month for the first time in more than 3-1/2 years and the year-on-year rise in inflation fell further below 3%, boosting market expectations for a rate cut by the Fed. next march

The reading came a week after Fed policymakers opened the door to a rate cut in 2024 at the central bank’s final meeting of the year, a move that sent the dollar lower.

“The Fed made significant progress on inflation as the core started the year closer to the 5% annual rate, although the work is not yet done to ensure that inflation is on a sustained trajectory toward its 2% target,” Wells Fargo analysts said. in a note.

It hovered near a five-month low of 101.42 last week and was last at 101.59.

In Asia, it rose just 0.1% to 142.25 per dollar, with further support from comments from BOJ Governor Kazuo Ueda.

Ueda said on Monday that the likelihood of hitting the central bank’s inflation target was “gradually increasing” and would consider changing policy if the prospect of sustainably hitting the 2% target improved “sufficiently”, although he said the BOJ had not decided on specific timing. change your ultra-free currency position.

“BOJ Governor Ueda did not provide any policy guidance in his speech yesterday, although he was hopeful that Japan is finally emerging from a low-inflation environment,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.

A slew of data on Tuesday showed Japan’s unemployment rate was unchanged at 2.5% in November from the previous month, while business-to-business inflation held steady at 2.3% last month.

Elsewhere, China’s yuan fell against the dollar on rising expectations of further monetary easing from Beijing.

China’s five largest state-owned banks cut interest rates on some deposits late last week, the third round of such cuts this year. Several listed banks have since followed suit, the official Shanghai Securities News reported on Tuesday.

The cuts could ease the People’s Bank of China’s (PBOC) move toward monetary easing and drive money into wealth management products and bond funds, Caitong Securities said in a report.

It eased 0.1% to 7.1433 per dollar, while its offshore counterpart was last at 7.1461 per dollar.