The dollar was steady on Tuesday and the yen inched away from one-month highs in cautious trading as investors braced for U.S. inflation data and reassess expectations of a large interest rate cut from the Federal Reserve next week.
A mixed labour report on Friday failed to make a clear-cut case on whether the Fed would deliver a regular 25 basis point (bps) rate cut or an outsized 50 bps one at its Sept. 17-18 policy meeting.
Traders are now waiting on Wednesday’s U.S. consumer price index report for further policy clues although the Fed has made it clear employment has taken on a greater focus than inflation. The headline CPI is expected to have risen 0.2% on a month-on-month basis in August, according to a Reuters poll, unchanged from the previous month.
A weaker-than-expected report could bolster market expectations of a 50 bps cut, but a steady reading may leave the 25 bps versus 50 bps debate unresolved, according to Charu Chanana, head of currency strategy at Saxo.
“Overall, the USD is expected to trade sideways to higher, as current Fed easing expectations still appear excessive.”
China’s yuan eased slightly Tuesday, but losses were capped by better-than-expected export data. [CNY/]
Imports, however, missed forecasts and grew just 0.5%. That follows lower-than-expected inflation data published on Monday, highlighting still weak domestic demand.
Investor focus will also be on the highly anticipated televised U.S. presidential debate later on Tuesday that could weigh heavily on the November election.
The dollar was little changed at 143.10 yen, giving up gains from earlier in the session but was still creeping away from the one-month low of 141.75 touched on Friday. The greenback fell 2.7% last week against the yen.
