The dollar remained stable on Tuesday as investors anticipated an upcoming inflation report expected to influence the U.S. interest rates outlook. Meanwhile, the yen hovered near a two-week low, raising concerns about potential intervention.
The currency market has been relatively quiet this week, with investors trying to predict the Federal Reserve's path this year following recent softer-than-expected U.S. labor market data and comments from central bankers.
Due to persistent inflation, investors have had to reduce their expectations for rate cuts this year. They now anticipate 42 basis points of easing, with a 60% chance of a cut in September, according to the CME FedWatch tool.
Before that, the U.S. Producer Price Index, set to be released later on Tuesday, will be analyzed to gauge whether inflation is moving towards the Fed's 2% target.
The euro remained steady at $1.0786 but has risen 1% against the dollar so far this month. Meanwhile, sterling was last at $1.2554, up about 0.5% in May.
The dollar index, which measures the U.S. currency against six major rivals, was last at 105.25.
A Reuters poll indicated that nearly two-thirds of economists expect the Fed to cut its key interest rate twice this year, starting in September, up from just over half in the previous survey.
Yen Concerns
Traders are on edge as the yen nears levels that previously triggered suspected interventions by Tokyo. It was last at 156.32 per U.S. dollar, after hitting a two-week low of 156.40 earlier in the session.
Japan's Ministry of Finance is believed to have intervened in the currency market from the end of April to early May after the yen reached a 34-year low of 160.245 on April 29.
However, market sentiment remains bearish on the yen due to the significant disparity between Japan's ultra-low yields and those in other major economies.
Japanese Finance Minister Shunichi Suzuki stated on Tuesday that the government will work closely with the Bank of Japan on foreign exchange matters to ensure alignment in policy objectives.
"We'll take all possible measures to closely monitor the currency," Suzuki said, emphasizing the importance of the exchange rate moving stably in line with fundamentals, rather than focusing on its level.
The yen received brief support on Monday when the Bank of Japan issued a hawkish signal by reducing its offer amount for a segment of Japanese government bonds.
The International Monetary Fund remarked that Japan's commitment to allowing the yen to move flexibly would help the central bank concentrate on achieving price stability, cautioning against calls by some analysts to use monetary policy to slow the yen's decline.
Elsewhere, the Australian and New Zealand dollars remained flat in early trading. The Australian dollar last stood at $0.6608, while the New Zealand dollar was at $0.6017.
Paraphrasing text from "Reuters" all rights reserved by the original author.
