(Updates rates at 1055 GMT)
By Alun John and Anna Pruchnicka
LONDON, April 11 (Reuters) - The dollar traded at its
highest since November against a basket of major currencies on
Thursday, after hotter-than-expected U.S. inflation data a day
earlier squashed expectations of an interest rate cut in June,
leaving the yen at a 34-year low.
Investor focus will now be on U.S. producer price data and
the European Central Bank's policy meeting later in the day, for
indications about whether the Federal Reserve and ECB policies
will start to diverge later this year.
The euro was down 0.13% at $1.07267, following
Wednesday's 1% fall on the U.S. data. The pound traded
flat at $1.2534 after a 1.1% fall a day earlier.
Any change in ECB rates would come as a major surprise to
markets, but the focus is on what president Christine Lagarde
says about the pace of cuts. Policymakers offered multiple hints
in recent weeks, some quite explicit, that the central bank will
start cuts at its June meeting.
The ECB announces its rate decision at 1415 CET (1215 GMT)
The outlook for the ECB and for other central banks has been
complicated by U.S. inflation data, which caused markets to push
back significantly their expectations of Fed rate cuts, said
Simon Harvey, head of FX analysis at Monex Europe.
"The ECB will likely try to be as non-committal as possible
about their path after June at today's meeting," he said, adding
that the economic situation in Europe meant the central bank
would have to cut more than its U.S. counterpart in the coming
months, which would send the euro lower.
The yen was at 153.26 per dollar, flat on the day,
but at its weakest since 1990 again after a bruising Wednesday
which saw the dollar climb nearly 1% against the Japanese
currency.
That left the dollar index a touch higher on Thursday
at 105.26, its highest since November.
Markets are now pricing in a 17% chance of the Fed cutting
rates in June, compared with 50% before the CPI data, according
to CME FedWatch tool, with September turning out to be the next
starting point for rate cuts.
Traders are also pricing in 43 basis points of Fed cuts this
year, far less than the 75 basis points of easing projected by
the U.S. central bank. At the start of the year, traders had
priced in over 150 bps of cuts in 2024.
U.S. producer price inflation data later on Thursday could
shape those expectations further, as it will give clues about
what to expect from personal consumption inflation data, due
later in the month, the Fed's preferred gauge of inflation.
The Canadian dollar hit its weakest since November at C$
1.3702 per U.S. dollar on Wednesday, after the U.S. CPI data and
after the Bank of Canada left rates steady but said a June cut
was possible.
YEN WATCH
The yen's slide has brought intervention fears back as
authorities in Tokyo reiterated they would not rule out any
steps to deal with excessive swings.
Japan intervened in the currency market three times in 2022
as the yen slid toward what was then a 32-year low of 152 to the
dollar.
"These warnings from Tokyo will quickly start to sound
hollow and hence for credibility purposes alone, we maintain
that intervention looks imminent," said MUFG analysts in a note.
"It may require one further sharp jump toward 155.00 (for
dollar/yen) to justify it more clearly given the fact that the
moves to date certainly are more modest than in 2022 when
intervention took place."
The yen is down nearly 8% against the dollar this year, with
the currency rooted near 151-per-dollar levels since the Bank of
Japan last month ended eight years of negative interest rates.
Low Japanese rates have made the yen the funding currency of
choice for carry trades for years, in which traders typically
borrow a low-yielding currency to then sell and invest the
proceeds in assets denominated in a higher-yielding one.
Bank of Japan Governor Kazuo Ueda said on Wednesday the
central bank would not directly respond to currency moves in
setting monetary policy, brushing aside market speculation that
the yen's sharp falls could force it to raise interest rates.