Currency market calm ahead of key US economic data release

Currency market in focus: The currency market remained tranquil on Thursday, with the US dollar stabilising against major counterparts as investors awaited further data from the world's largest economy, seeking insights into the Federal Reserve's future policy direction.’

Following Tuesday's higher-than-anticipated US consumer price index (CPI) report, concerns about persistent inflation have resurfaced, prompting traders to reconsider the possibility of a June interest rate cut by the Fed, as previously anticipated.

Despite still indicating a 65 per cent chance of a rate cut in June, down from 71 per cent earlier in the week, market participants are closely monitoring the situation, with the probability of a rate cut in July standing at around 83 per cent, according to LSEG's rate probability app.

With the Fed widely expected to maintain current rates at its upcoming meeting, focus is shifting to the bank's updated economic projections.

Kyle Rodda, senior financial market analyst at Capital.com, remarked, “The data is influencing slight adjustments in rate expectations, but overall, the markets have been relatively stable lately, anticipating three rate cuts this year.”

"A more hawkish stance from the Fed next week could reduce that to two rate cuts and push back expectations for the first cut to September, which would be seen as bullish for the US dollar," Rodda added.

The dollar index, which measures the greenback against a basket of six currencies, remained largely unchanged at 102.77.

Investors are eagerly awaiting US retail sales data, the producer price index (PPI) report, and jobless claims later on Thursday for further indications of economic slowdown.

Fed Chair Jerome Powell recently mentioned that the central bank was nearing the confidence threshold required to initiate easing measures.

Against the yen, the dollar maintained its position at 147.69 yen, with speculation rising over the Bank of Japan's monetary policy meeting on March 18-19 and the possibility of exiting negative interest rates.

Sources revealed that the Bank of Japan might discuss ending negative rates next week if wage negotiations with major firms yield positive results.

Elsewhere, the euro held steady against the dollar at $1.0949, ahead of statements by several European Central Bank officials scheduled for Thursday.

Sterling remained flat at $1.2796, following Wednesday's data indicating a return to growth for Britain's economy in January after a brief recession in the latter part of 2023.

In the cryptocurrency market, bitcoin experienced a slight decline of 0.28 per cent to $72,950.00, after reaching a record high of $73,678 in the previous session.

(With Reuters Inputs)