Dollar’s descent carries on

The dollar faced fresh selling pressure on Wednesday, chiefly against the Japanese yen, which got a boost from economic growth data.

Investors were bracing for an update on U.S. consumer price inflation later, which could have a significant bearing on the pace of the Federal Reserve’s interest rate increases.

What are currencies doing?

The ICE U.S. Dollar Index DXY, -0.14% which measures the currency against six main rivals, fell 0.2% to 89.489, with the index having lost around 1% so far this week. The broader WSJ U.S. Dollar Index BUXX, -0.20% fell 0.3% to 83.50.

The greenback declined sharply against the Japanese yen USDJPY, -0.49% USDJPY, -0.49% dropping to ¥107.22 from ¥107.82 late Tuesday, and tapping a 15-month low of around ¥106.85.

The yen rose to its highest level against the dollar since early September on Monday, owing to uncertainty surrounding global markets after last week’s meltdown for equities. The yen is considered a haven in times of economic and financial upheaval.

The British pound GBPUSD, -0.0792%  edged up to $1.3901 from $1.3894 late Tuesday. Meanwhile, the euro EURUSD, +0.1052%  rose to $1.2377, from $1.2354 late Tuesday.

What is driving the market?

Further strength in the yen came after Japan reported its eighth-straight quarter of economic growth — rising an annualized 0.5% in the October-December period, though that was a much slower pace than a revised 2.2% in the previous three months. Japan’s economy has now seen its longest run of growth in 28 years.

That growth streak could cast further doubt on the need for the Bank of Japan to keep propping up the economy with ultraeasy monetary policy.

The dollar surged last week as U.S. stocks tumbled on concerns about higher inflation, but a rebound for equities — Wall Street logged its third-straight gain on Tuesday — has dampened appetite for the currency.

The next big event for traders will be U.S. consumer-price-inflation data, which will be a barometer for the anticipated March interest rate increase by the Federal Reserve. The data, due at 8:30 a.m. Eastern Time, is expected to show a 0.4% rise for headline inflation and a 0.2% gain for core inflation, which strips out volatile food and energy prices, according to a poll of economists surveyed by MarketWatch.

An inflation reading that comes in stronger than expected could give the Fed a stronger case for delivering on its expected three or four interest-rate rises this year.

Which other currencies are in focus?

The South African rand USDZAR, -0.8912%  strengthened Wednesday as South Africa’s President Jacob Zuma clung onto power. The leadership of the African National Congress has given Zuma 24 hours to hand power over to Cyril Ramaphosa, the deputy president and party leader, but he has thus far refused to step down.

Zuma, who is being pressured to go amid corruption allegations and a stagnating economy, is expected to respond to the ANC’s decision to recall him on Wednesday. One dollar last bought 11.918, down 0.4%, according to FactSet data.

Source:marketwatch.com