By Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) -The dollar rose across the board on Wednesday, soaring against the Japanese yen to its highest since mid-1990, after U.S. inflation rose more than expected in March, pushing out the expected timing of a first rate cut to September from June.
Market participants are also on the alert for any signs of intervention from the Japanese authorities to boost the yen.
The big move in the yen came after data showed the Consumer Price Index (CPI) rose 0.4% on a monthly basis in March, compared with the 0.3% increase expected by economists polled by Reuters. On a year-on-year basis, the CPI increased 3.5% versus forecasts of a 3.4% growth.
Excluding the volatile food and energy components, core inflation grew 0.4% month-on-month in March, compared with expectations of a 0.3% advance. Annually, it gained 3.8%, versus the estimated 3.7% increase.
Following the CPI data, traders slashed bets the Federal Reserve will cut interest rates in June to 19%, from 57% late on Tuesday, according to the CME’s FedWatch tool. They now see the likelihood of an interest-rate cut at the September meeting, with a 72% probability, based on the prices of rate futures.
Fed fund futures have also reduced the number of rate cuts this year to under two, from about three or four a few weeks ago.
“The core rate of inflation has accelerated four months in a row… maybe you get some moderation later in the year but given the fact you’re starting from a higher rate, you’re going to need real weak numbers and more time to be convinced that inflation is trending back down after what appeared to be the case last fall,” said Joseph Lavorgna, chief U.S. economist, at SMBC Nikko Securities in New York.
“What that means is the timing of Fed easing is going to get pushed out.”
In midday trading, the dollar index, which measures the greenback’s value against six major currencies, was up 1.1% at 105.22. Earlier, it climbed to its highest since November.
The euro, meanwhile, fell 1.1% to $1.0737.
Against the yen, the dollar was last up 0.7% at 152.895 yen , having touched 152.95, the highest since mid-1990.
Traders have been on alert for weeks for possible intervention by Tokyo authorities, as even a historic exit from negative rates in Japan has failed to lift the currency.
Japan intervened in the currency market three times in 2022, selling the dollar to buy yen, first in September and again in October as the yen slid towards what was then a 32-year low of 152 to the dollar.
The yen has been under pressure for years as U.S. interest rates have climbed and Japan’s have stayed near zero, driving cash out of yen and into dollars to earn so-called “carry”.
“Dollar-yen is more sensitive to long-term rates than euro-dollar and more unstable at current levels, with a large net long among the leveraged community that could trigger an acceleration in either direction on a big surprise,” analysts at Societe Generale said in a note.
Yen futures data from CFTC showed non-commercial short positions had climbed to 143,230 contracts on April 2, the largest since December 2023.
“I would say there is a 30% chance of Japanese intervention this month. That move today, that quick move down, it just seems a bad time to fight it,” said Adam Button, chief currency analyst at FOREXLIVE.
“Japan doesn’t want the yen to weaken further, but this is fundamental move of broad U.S. dollar strength, I don’t see the argument for fighting this move from Japan right now, it’s not a yen move, it’s a broad US dollar move.”
(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Herb Lash in New York, Karen Brettell, and Vidya Ranganathan in Singapore; Editing by Dhara Ranasinghe, Andrew Heavens and Chizu Nomiyama)
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. It is typically measured by the Consumer Price Index (CPI).
The Consumer Price Index (CPI) measures the average change over time in the prices paid by consumers for a basket of goods and services.
Interest rates are the cost of borrowing money or the return on savings, expressed as a percentage of the principal amount. They are influenced by central bank policies and economic conditions.
Currency intervention refers to actions taken by a country's central bank to influence the value of its currency in the foreign exchange market.
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