Dollar steady as US inflation data awaited, yen retraces gains

TOKYO, Sept 13 (Reuters) – The dollar was broadly steady ahead of a key U.S. inflation report later on Wednesday, though it rose on the yen as traders further digested comments from Japan’s top central banker on a possible early exit from its negative interest rate policy.

The U.S. currency advanced around 0.2% to 147.39 against the yen. It has now firmly retraced its biggest one-day percentage rise in two months that was made on Monday following remarks from Bank of Japan (BOJ) Governor Kazuo Ueda over the weekend.

Investors have had more time to consider Ueda’s comments more carefully, said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.

“The statement to our mind was quite a conditional one, (Ueda) didn’t promise anything,” he said.

Influential ruling party lawmaker Hiroshige Seko on Tuesday also signalled his preference for ultra-loose monetary policy, after Ueda’s comments pushed up the yen and bond yields.

The yen has been under relentless pressure against the dollar as the BOJ remains a dovish outlier among global central banks, especially since the Federal Reserve began its aggressive rate-hike cycle in March 2022.

Data released earlier on Wednesday showed Japan’s annual wholesale inflation slowed in August for an eighth straight month, although at 3.2% it remains above the central bank’s 2% target.

More broadly, the dollar held firm, though moves were subdued as traders awaited a closely watched U.S. inflation reading due later on Wednesday.

Sterling slipped 0.05% to $1.2489, while the Australian dollar fell 0.03% to $0.6408.

The U.S. dollar index , which measures the greenback against a basket of rivals, was steady at 104.61, after slipping to a one-week low on Monday and clocking its largest daily fall in two months.

Analysts attributed the slide to an unwinding of long dollar positions after a recent run of resilient U.S. economic data.

Wednesday’s U.S. consumer price index (CPI) data for August comes just a week before Federal Reserve officials gather to decide on interest rate policy. Headline CPI is expected to accelerate by 0.6% compared to 0.2% a month ago, and by 3.6% on an annual basis.

While the central bank is largely expected to keep rates on hold at next week’s meeting, according to CME’s FedWatch Tool, the Fed’s next move in November remains more uncertain.

“I think there is a chance for the Fed to raise interest rates another time this year,” said Tina Teng, market analyst at CMC Markets.

Elsewhere, the euro was flat at $1.0753. It hit a one-week high of $1.0777 in the previous session as markets raised their bets on further rate hikes from the European Central Bank (ECB) ahead of its monetary policy decision.

A source told Reuters that the ECB expects inflation in the 20-nation euro zone to remain above 3% next year, bolstering the case for a tenth consecutive interest rate increase on Thursday.

“In recent months, European inflation, core inflation in particular, has fallen more slowly than expected. This has given the ECB some serious headaches,” analysts at Rabobank said in a note.

“The high inflation rate warrants another rate hike, but the economic indicators … signal that a recession is imminent.”

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