By Brigid Riley
TOKYO (Reuters) -The dollar index hovered at a one-month high against a basket of currencies on Wednesday as remarks by Federal Reserve Governor Christopher Waller dampened expectations for a March rate cut.
Meanwhile, China’s offshore yuan failed to hold on to a brief pickup from a two-month low in the wake of mixed domestic economic data, as expectations grow for Beijing to roll out more stimulus measures soon.
In a boost to the dollar, Waller said that while the U.S. is “within striking distance” of the Fed’s 2% inflation goal, the Fed should not rush towards cuts in its benchmark interest rate until it is clear lower inflation will be sustained.
Market expectations of a rate cut in March have eased to a 62.2% chance versus an 76.9% view in the prior session, according to CME’s FedWatch Tool.
While the market’s latest pricing brings the Fed rate curve into more sensible territory, “with 157 basis points of rate cuts still priced in for 2024, there is room for this to ease back,” said Tony Sycamore, market analyst at IG.
Remarks by European Central Bank (ECB) President Christine Lagarde later on Wednesday could bring further repricing, he added.
“Rate cuts are coming but not as soon as some might be hoping for,” Sycamore said.
The dollar index, a measure of the greenback against a basket of major currencies, climbed to 103.55, its highest level since Dec. 13.
U.S. retail sales data will be published later on Wednesday.
In China, official data showed the economy grew slightly slower than expected in the fourth quarter, while a deepening property crisis, mounting deflationary pressures and weak demand continue to plague the country.
The offshore Chinese yuan ticked up to as high as 7.2073 per dollar after the data release but slid back to 7.220, not far from the two-month low of 7.2229 touched on Tuesday.
The Australian dollar, often used as a liquid proxy for the yuan, fell 0.44% versus the greenback to a fresh one-month low of $0.65515.
The kiwi stood 0.33% lower at $0.6114.
Meanwhile, the euro ticked down to a new one-month low at $1.0858, as several ECB policymakers’ comments this week maintained uncertainty over the timing of rate cuts.
Sterling similarly edged down to its lowest since Dec. 13 at 1.25995. It was last trading at $1.26005, down 0.28% on the day, ahead of UK consumer price index data for December due at 0700 GMT.
The yen fell under some pressure again as U.S. bond yields ticked up overnight to support the greenback. The dollar was up 0.47% against the Japanese currency, pushing it to a fresh one-and-a-half low of 147.88 per dollar.
The sharp move in dollar/yen overnight was a “reminder that US Treasury yields remain a big influence on JPY with the (Bank of Japan) likely on the sidelines until at least March (and in our view more likely until mid year),” Rodrigo Catril, senior currency strategist at National Australia Bank, wrote in a note.
In cryptocurrencies, bitcoin fell 1.47% to $42,791.02.
(Reporting by Brigid Riley; Editing by Sonali Paul and Miral Fahmy)
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