The dollar climbed in turbulent trading on Thursday, on course for its second straight monthly gain against the euro and yen, as U.S. inflation was as expected in January.
After a policymaker suggested exiting ultra-easy policies, the yen rose, while bitcoin hovered at a two-year high set Wednesday. The dollar sank earlier on Thursday as January U.S. price gains were the weakest in nearly three years, keeping a June Federal Reserve interest rate cut on the table.
"The worst fears of market participants have been largely alleviated by this print," Toronto-based Corpay chief market strategist Karl Schamotta said. "The big issue here was that the CPI print did kind of put the fear of God into a lot of traders - there was a lot of concern that underlying pressures could turn out to be hotter than anticipated."
The dollar index reached a three-month high on Feb. 13 after the CPI showed prices rose faster than expected in January.
Thursday's dollar decline was brief; the greenback rapidly recovered. Scotiabank's Toronto chief foreign exchange strategist Shaun Osborne said "very little conviction behind some of the trading that we’re seeing in FX at the moment," and "the dollar looks pretty fully priced for the fundamental situation that we have right now."
Markets are eyeing economic data for signs of Fed rate cuts. Many observers expect the U.S. economy to stagnate and inflation to fall closer to the central bank's 2% target. This would cause the Fed to ease and lower the dollar.
"The signs are auguring towards a cooling in a lot of U.S. economic data and that could damage that U.S. exceptionalism trade and lead to flows out of the dollar," Schamotta. Trading prices indicate 64% probability. The CME Group's FedWatch Tool predicts June rate cuts, up from 63% on Wednesday. Thursday's data implies that inflation will return to 2% unevenly, Atlanta Fed President Raphael Bostic said.
Chicago Fed President Austan Goolsbee believes last year's goods and labor supply improvements set the foundation for further lower U.S. inflation this year. Dollar index closed 0.22% higher at 104.15. A 0.57% monthly gain is expected. The euro sank 0.33% to $1.0800 and will lose 0.15% monthly.
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