The US dollar declined against a basket of other major currencies on Monday to begin the week on a negative note. Tomorrow, the Federal Open Market Committee is set to begin a monetary policy meeting that will last two days, which reduced traders’ appetite for risk and pushed the Japanese yen higher against the greenback.
The Federal Reserve will release a statement on Wednesday that will include the latest interest rate decision from the Federal Open Market Committee. Despite mixed economic data in recent weeks, the market still believe that policymakers will probably raise interest rates 0.25% to a range between 1.00% and 1.25% as comments from Federal Reserve officials remained hawkish.
The CME Group FedWatch tool, which tracks prices of federal funds futures to view the bets investors are taking on future monetary policy moves, shows a 95.8% chance of an interest rate hike following June’s meeting. The US dollar often moves in tandem with interest rates, however wide expectations of the move from the Federal Reserve were overshadowed by uncertainty towards upcoming major data releases this week.
Tomorrow, the US Bureau of Labor Statistics will publish a new reading for its producer price index, which advanced 0.5% in April following a drop in March. The index is a leading indicator for inflation, and is closely watched by the Federal Reserve when deciding future monetary policy. Estimates show that the index might gain 0.1% in May.
The bureau will release more inflation data on Wednesday. The core consumer price index, which had a disappointing 0.1% reading in April despite forecasts of a 0.2% gain, might climb 0.2% in May. Meanwhile on a year over year basis, the index is expected to stay 1.9% higher than May 2016, unchanged from the previous month.
The same day will also contain fresh reports on retail sales in May and business inventories in April. The growth of retail sales last month might have edged lower from 0.4% in April while remaining positive at 0.1%, however, forecasts point to a possible 0.2% drop in business inventories in April.
EUR/USD traded at 1.1203 as of 18:45 GMT on Monday after rising to 1.1228 at 11:30 GMT, the pair’s highest level since June 8. EUR/USD began trading today at 1.1199. USD/JPY recovered to 109.80 after dropping to 109.63 at 16:20 GMT, which was also last seen on June 8. USD/JPY started the week at 110.31.
The Dollar Index, which measures the strength of the US currency against a basket of other major currencies, dropped to 97.17 as of 18:49 GMT today from 97.27 yesterday.
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