Yen Traders Watching Developing Political Scandal Ahead of U.S. Inflation Report

The U.S. Dollar fell against a basket of currencies on Monday amid fears of lower inflation. On Friday, the dollar strengthened in reaction to stronger-than-expected non-payrolls data, but the headline number was not enough to attract buyers on Monday. Instead, reality set in as investors focused on persistently low average hourly wages that will likely constrain the U.S. Federal Reserve from raising interest rates more than three times this year.

March U.S. Dollar Index futures settled at 89.867, down -0.198 or -0.22%.

On Friday, average hourly earnings inched up four cents, or 0.1 percent, to $26.75 in February, a slowdown from the 0.3 percent rise in January. That lowered the year-on-year increase in average hourly earnings to 2.6 percent from 2.8 percent in January.

To get the dollar moving higher and to encourage the Fed to raise rates more aggressively, wage growth would need to more up to around three percent.

On Tuesday, investors will get the opportunity to react to the latest U.S. data on consumer inflation. It is expected to come in at 0.2%, down from the previously reported 0.5%. Core CPI is also expected to rise by 0.2%, down from the previously reported 0.3%.

This week’s U.S. inflation data could generate more uncertainty for investors. Weaker-than-expected consumer inflation data on Tuesday and producer inflation data on Wednesday could give stocks a boost while putting further pressure on the struggling U.S. Dollar.

Investors also remain cautious on the outlook for the U.S. Dollar due to concerns over U.S. trade protectionism after President Donald Trump imposed tariffs on steel and aluminum imports, except those from Mexico, Canada and Australia. Most of the tension is coming from investors who have seen a negative impact on the dollar from previous tariffs.

Japanese Yen

The Dollar/Yen posted a gain on Monday as investors kept an eye on a suspected cover-up of a cronyism scandal involving Japanese Prime Minister Shinzo Abe and his close ally, Finance Minister Taro Aso.

The USD/JPY settled on Monday at 106.407, down 0.396 or -0.37%.

The developing political scandal is raising doubts about Abe’s ability to continue to pursue his economic policies, including monetary easing.

According to reports, the Ministry of Finance admitted on Monday it altered documents related to a discounted sale of state-owned land to a school operator with ties to Abe’s wife.

 

Australian and New Zealand Dollars

The Australian and New Zealand Dollars rose on Monday on concerns over struggling U.S. inflation and increased demand for higher risk assets. Position-squaring ahead of Tuesday’s consumer inflation report may have also helped boost prices.

The AUD/USD and NZD/USD settled at .7871, up 0.0026 or +0.33% and .7293, up 0.0014 or +0.20%, respectively.

Early Tuesday, Reserve Bank of New Zealand acting governor Grant Spencer said the government should consider a permanent structure for macro-prudential tools, which he attributes as helping the regulator meet its policy objectives.

The Aussie continued its rally against the greenback early Tuesday as weaker commodity prices were offset by lower U.S. bond yields.