© Reuters. FILE PHOTO: U.S. Dollar banknote is seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo
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By Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) -The U.S. dollar rose in choppy trading on Tuesday, after data showed hotter-than-expected inflation last month for the world’s largest economy, slightly paring back expectations of an interest rate cut by the Federal Reserve at its June policy meeting.
It was a volatile session, with the U.S. dollar initially jumping after the data, then falling and eventually rising after the market digested the report. The dollar index was last up 0.3% at 103.06.
The Labor Department report showed that the Consumer Price Index (CPI) rose 0.4% in February, in line with the forecast for a 0.4% increase. On a year-on-year basis, the CPI gained 3.2%, compared with the estimated 3.1% rise.
Excluding volatile food and energy components, the core figure rose 0.4% month-on-month in February, compared with an estimated 0.3% rise. Annually, it gained 3.8%, compared with the forecast of a 3.7% increase.
“The inflation situation is going to likely drag out for several more months, thus possibly keeping the first Fed rate cut still on the sidelines for a bit longer than expected,” said Russell Price, chief economist at Ameriprise Financial (NYSE:AMP) Services in Troy, Michigan.
“I was looking for June for the first rate cut to be the most likely and I still think that might be the most likely.”
U.S. rate futures have priced in a 67% chance of a rate cut at the June policy meeting, according to the LSEG’s rate probability app. That was at around 71% on Monday.
The market has also factored in two more cuts of 25 basis points each for the year, taking down the fed funds rate to 4.46% by the end of 2024.
Against the yen, the dollar was up 0.6% at 147.865. The yen fell after Bank of Japan Governor Kazuo Ueda offered a slightly bleaker assessment of the country’s economy than he had in January, while Finance Minister Shunichi Suzuki said Japan was not at a stage where it could declare deflation as beaten.
Their remarks come ahead of the BOJ’s policy meeting next week.
Elsewhere, the euro slipped 0.2% to $1.0906, after hitting a roughly two-month high last week.
Analysts expect the European Central Bank to communicate on Wednesday the outcome of discussions on the Eurosystem’s operational framework review.
Money markets fully price in a first ECB rate cut by June and a total of 100 basis points of easing by year-end.
Source: Investing.com
