FOREX-Currency market muted ahead of key US economic data

With the Fed widely expected to hold rates steady at its meeting next week, attention will be on the bank's updated economic projections. "The data is driving marginal changes in rate expectations, but ultimately, the markets have been pretty settled recently on three cuts this year," said Kyle Rodda, senior financial market analyst at Capital.com.

The currency market was sedated on Thursday, with the U.S. dollar consolidating against major peers as traders awaited more data from the world's largest economy for clues on the direction of Federal Reserve policy. Tuesday's hotter-than-expected U.S. consumer price index (CPI) has re-ignited concern that inflation could remain sticky, leaving market players to reassess if the Fed will start cutting interest rates at its June meeting as previously expected.

Markets still see a 65% chance of a rate cut in June, though that has edged down from 71% earlier in the week, according to LSEG's rate probability app. The likelihood of a July rate cut sits around 83%. With the Fed widely expected to hold rates steady at its meeting next week, attention will be on the bank's updated economic projections.

"The data is driving marginal changes in rate expectations, but ultimately, the markets have been pretty settled recently on three cuts this year," said Kyle Rodda, senior financial market analyst at Capital.com. "A more hawkish Fed next week could lower that to two (rate cuts) and defer expectations for the first to September," which would essentially be a bull case for the U.S. dollar, he said.

Fed Chair Jerome Powell said last week the U.S. central bank was "not far" from gaining the confidence needed to begin easing. Markets will scrutinise U.S. retail sales data, the producer prices index (PPI) report and jobless claims due later on Thursday for more evidence of the economy slowing down.

Ahead of the data, the dollar index, which measures the greenback against a basket of six currencies, was last up 0.1% at 102.85. Against the yen, the dollar edged 0.1% higher to 147.89 yen , as an exit from negative rates at the Bank of Japan's monetary policy meeting on March 18-19 continues to be a close call.

Sources told Reuters that Japan's central bank will debate ending negative rates next week if big firms' wage talks yield strong results. The preliminary results of the spring wage negotiations are due on Friday, and news has already begun to trickle out that several of the country's biggest companies have agreed to fully meet union demands for pay increases.

Given the heavy media coverage on BOJ thinking ahead of the meeting, a lifting from negative rates in March has largely been priced into dollar/yen, said Masafumi Yamamoto, chief currency strategist at Mizuho Securities. "I think the market focus is shifting to when the next rate hike is, and also the potential reduction of Japanese government bond purchases."

On the other hand, if the central bank leaves negative rates in place next week, that could send the Japanese currency back to 150 per dollar, Yamamoto added. Elsewhere, the euro was down 0.05% at $1.0942, ahead of remarks by several European Central Bank officials on Thursday.

Sterling was little changed at $1.2792. Data on Wednesday showed Britain's economy returned to growth in January after entering a shallow recession in the second half of 2023. In cryptocurrencies, bitcoin was mostly flat at $73,092.00, after hitting a record high of $73,678 the previous session.

Ether fell 0.72% to $3,963.70.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)