At 06:00 ET (10:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 103.035, after gaining around 0.5% last week, its first weekly gain in four.
The U.S. currency has started the new week on a slightly negative note, but remains near two-week highs after strong U.S. inflation readings from last week put traders on guard over any hawkish sentiments from the Fed, with the U.S. central bank holding a two-day policy-setting meeting this week, concluding on Wednesday.
Markets are currently pricing in around 75 basis points of cuts this year, down from around 140 bps at the start of the year, with around a 60% chance of the first rate cut coming by June, according to LSEG data.
The focus on Wednesday will be on whether Fed policymakers change their projections of rate cuts, or dot plots, for the year.
“There are currently three 25bp rate cuts in the median 2024 Dot Plot, but projections are so dispersed that it would only take two FOMC members changing their ‘dot’ to take the median to two or four rate cuts this year,” said analysts at ING, in a note.
“We expect an unchanged Dot Plot but admit that a hawkish revision looks more likely than a dovish one.”
In Europe, EUR/USD edged 0.1% higher to 1.0899, after eurozone consumer prices were confirmed falling nearer to the European Central Bank’s 2% medium-term target in February.
The final eurozone CPI came in at 2.6% on an annual basis in February, a drop from 2.8% the prior month, as widely expected, while the core annual number fell to 3.1% from 3.3% in January.
There are a number of ECB speakers due this week, including President Christine Lagarde on Wednesday, and the latest noises emerging from this central bank have tended to point to a rate cut in June.
“My current view is that the picture should be sufficiently clearer when the Governing Council meets in June (as we will have a lot more information – particularly on wage dynamics – available in our deliberations) to give us sufficient confidence to make monetary less restrictive,” policymaker Gabriel Makhlouf said on Friday, adding to this opinion.
GBP/USD traded 0.1% lower at 1.2738, with the Bank of England widely expected to keep rates unchanged when it meets on Thursday.
“After dropping its hawkish tone in February, we don’t see the Bank being in any rush to take further steps to the dovish side of the spectrum just yet, at least barring a major downward surprise in CPI on Wednesday,” ING said.
In Asia, USD/JPY traded 0.1% higher to 149.22, amid volatile trading ahead of the upcoming Bank of Japan meeting.
The BOJ kicked off its two-day meeting earlier Monday, with a hotly anticipated decision due on Tuesday.
USD/JPY had fallen as far as 146 on speculation that the central bank was set to end its ultra-dovish policies, but traders still remained split over whether the bank will raise rates in March or April, with general consensus leaning slightly towards an April move.
USD/CNY edged 0.1% higher to 7.1982, after the release of a series of economic data that offered mixed cues on the Chinese economy.
While industrial production grew more than expected in the first two months of 2024, retail sales missed expectations and unemployment unexpectedly rose.
The People’s Bank of China is also set to decide on its loan prime rate this week, but is widely expected to leave the rate unchanged.
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