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The dollar traded near a four-week high against the euro on Tuesday, after signs of some stabilization in U.S. inflation bolstered expectations that the Federal Reserve will avoid cutting interest rates sharply next week.
Meanwhile, the European Central Bank is widely expected to cut interest rates by a quarter of a percentage point later today, and investors are awaiting hints on how close another rate cut could be.
The dollar rose against the yen after a volatile session yesterday that saw the US currency fall about 1.24 percent to its lowest level this year before recovering all its losses after the release of consumer price data.
Early yesterday, Junko Nakagawa, a member of the Bank of Japan’s board, reiterated the bank’s hawkish bias by saying low real interest rates leave room for further hikes.
Fellow Fed member Naoki Tamura said on Tuesday that the pace of monetary policy tightening expected by the market may be too slow, comments that helped mitigate the yen’s losses.
The dollar rose 0.31 percent to 142.805 yen by 0505 GMT, after earlier rising about 0.41 percent.
It fell to 140.71 yen for the first time since Dec. 28 in the previous session, following Nakagawa’s comments.
The U.S. consumer price index rose 0.2 percent last month, matching the advance it made in July.
But excluding the volatile food and energy components, the index rose 0.3 percent, after a 0.2 percent increase in the previous month.
As a result, traders have essentially discounted the possibility of a 50 basis point rate cut on September 18, leaving a 15 percent chance versus an 85 percent chance of a 25 basis point cut.
As for the European Central Bank, markets are 100 percent expecting a quarter-point rate cut today, with a group of policymakers backing another cut after a quarter-point rate cut in June.
The euro was steady at $1.10165, remaining close to yesterday’s low of $1.1002, its weakest since August 16.
The pound was also steady at $1.3050, after falling to $1.30025 in the previous session for the first time since August 20.
The Swiss franc fell as the dollar rose 0.11 percent to 0.8531 francs, after touching its highest level since August 21 at 0.8544 francs yesterday.
The risk-sensitive Australian and New Zealand dollars rose as Asian stocks tracked Wall Street gains.
The Australian dollar rose 0.22 percent to $0.6690, while its New Zealand counterpart rose 0.23 percent to $0.6152.
