Federal Reserve's Ending of Monetary Tightening Lowers Dollar In Asian Trade

The dollar remained weak in Asian trade on Thursday after falling overnight as lower-than-expected US inflation data fueled expectations that the Federal Reserve's monetary tightening will come to an end next month with one last interest rate hike.

The dollar index, which measures the currency against six major peers, fell 0.6% overnight and was on track to hit a new two-month low earlier in the Asian session before recovering some of its losses. The index was last up 0.069 percent at 101.53, putting it on track for its fifth consecutive week of losses.

The Consumer Price Index rose 0.1% last month after rising 0.4% in February, with lower petrol prices offset by higher rental costs. Reuters polled economists, who predicted a 0.2% increase in the CPI in March.

"While disinflationary trends have continued and broadened across headline, core, and supercore measures, the CPI report is far from conclusive on inflation," said Saxo Markets strategists.

According to Simon Harvey, head of FX analysis at Monex Europe, the data show that underlying demand in the US economy is still significant enough to keep inflation above the Fed's 2% target.

"Not only does this reinforce the need for a further rate hike, but it doesn't necessarily represent an outlook for domestic demand that is about to capitulate under imminently tightening credit standards and a collapse in consumer sentiment," Harvey said.

Meanwhile, minutes from the Fed's most recent meeting in March revealed that several Federal Reserve policymakers considered pausing interest rate increases in the aftermath of the failure of two regional banks, but ultimately concluded that high inflation needed to be addressed.

The minutes also revealed that staff expected a mild recession later this year.

According to the CME FedWatch Tool, the Fed raised interest rates by 25 basis points in March and markets are pricing in a 70% chance of another 25 bps hike in May before cutting rates at the end of the year.

San Francisco Federal Reserve Bank President Mary Daly on Wednesday said that while U.S. economic strength, labour market tightness, and too-high inflation suggest the Fed has "more work to do" on rate hikes, other factors including tighter credit conditions could argue for a pause.

"Headline CPI decelerated more than expected, while the Fed is near the end of its tightening cycle and growth is not hot but not cold, resulting in a goldilocks-like environment," said Christopher Wong, a currency strategist at OCBC in Singapore.

Investors will now turn their attention to retail sales on Friday to see how consumer spending has been affected.

The euro rose 0.02 percent to $1.0991 after hitting a two-month high of $1.1005 earlier in the session. The currency gained 0.7% on Wednesday and is set to rise for the fifth week in a row as traders bet that Europe would continue to tighten its monetary policy.

The Japanese yen fell 0.05 percent to 133.21 per dollar, while sterling was last trading at $1.249, up 0.07 percent on the day after rising roughly 0.5% on Wednesday.

The Australian dollar increased 0.33 percent to $0.671 after a strong jobs report bolstered the case for another rate hike and pushed bond yields higher.

The New Zealand dollar fell 0.08 percent to $0.622.

Bitcoin last rose 0.41 percent to $30,091.14 in cryptocurrencies. Ethereum was trading at $1,915.38, up 0.34 percent.