By Gertrude Chavez-Dreyfuss
NEW YORK, March 12 (Reuters) – The U.S. dollar rose in choppy trading on Tuesday, after data showed hotter-than-expected inflation last month for the world’s largest economy, slightly paring back expectations of an interest rate cut by the Federal Reserve at its June policy meeting.
It was a volatile session, with the U.S. dollar initially jumping after the data, then falling and eventually rising after the market digested the report. The dollar index was last up 0.3% at 103.06 =USD.
The Labor Department report showed that the Consumer Price Index (CPI) rose 0.4% in February, in line with the forecast for a 0.4% increase. On a year-on-year basis, the CPI gained 3.2%, compared with the estimated 3.1% rise.
Excluding volatile food and energy components, the core figure rose 0.4% month-on-month in February, compared with an estimated 0.3% rise. Annually, it gained 3.8%, compared with the forecast of a 3.7% increase.
“The inflation situation is going to likely drag out for several more months, thus possibly keeping the first Fed rate cut still on the sidelines for a bit longer than expected,” said Russell Price, chief economist at Ameriprise Financial Services in Troy, Michigan.
“I was looking for June for the first rate cut to be the most likely and I still think that might be the most likely.”
U.S. rate futures have priced in a 67% chance of a rate cut at the June policy meeting, according to the LSEG’s rate probability app. That was at around 71% on Monday.
The market has also factored in two more cuts of 25 basis points each for the year, taking down the fed funds rate to 4.46% by the end of 2024.
Against the yen, the dollar was up 0.6% at 147.865 JPY=EBS. The yen fell after Bank of Japan Governor Kazuo Ueda offered a slightly bleaker assessment of the country’s economy than he had in January, while Finance Minister Shunichi Suzuki said Japan was not at a stage where it could declare deflation as beaten.
Their remarks come ahead of the BOJ’s policy meeting next week.
Elsewhere, the euro EUR=EBS slipped 0.2% to $1.0906, after hitting a roughly two-month high last week.
Analysts expect the European Central Bank to communicate on Wednesday the outcome of discussions on the Eurosystem’s operational framework review.
Money markets fully price in a first ECB rate cut by June and a total of 100 basis points of easing by year-end. EURESTECBM6X7=ICAP
(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Herb Lash in New York and Stefano Rebaudo in Milan; Editing by Alex Richardson)
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