Written by Wayne Cole
SYDNEY (Reuters) – The dollar was mixed on Tuesday as investors waited to see how U.S. economic data affected the possibility of further rate cuts, while a rally in Japanese stocks helped to fuel the bleeding in yen markets.
The greenback rose 0.33% to 147.72 yen, briefly touching a one-week high of 148.23 overnight before profit-taking emerged.
Government sources told Reuters that Japan's parliament plans to hold a special meeting on August 23 to discuss the central bank's decision last month to raise interest rates.
The euro stood at $1.0938, after crawling higher overnight and near resistance at $1.0944 and $1.0963.
Sterling last bought $ 1.2778, while flat in 103.13.
Producer price figures due later will provide an appetizer for Wednesday's big inflation report, and could shake up markets as they use the Federal Reserve's favored personal consumption expenditure (PCE) measure.
Forecasts are for a 0.2% increase in both headline PPI and the headline measure.
Most important will be the consumer price and retail sales report for July which could have a material impact on whether the Fed eases by 25 basis points or by 50 basis points in September.
Right now the futures are evenly split on the big move, with the short pricing it as a dead certainty last week when the stock market was known for free.
“Hot CPI and hot sales could be a very volatile scenario, and see the bond market return to a 25bp cut,” JPMorgan analysts wrote in a note.
“Soft CPI and soft sales may ease some concerns about inflation risks, but bring renewed recession concerns to the market,” they added. “We may see the bond market react quickly to this price print of 50bps or more of the Sept cut.”
The former effect could raise Treasury yields and support the dollar, while the latter would have the opposite effect. Recession talk, in particular, tends to boost the yen and Swiss franc as safe havens.
The futures market clearly still sees recession as a risk with 101 basis points of Fed rate cuts at Christmas, and more than 120 basis points next year.
That appears to be at odds with most economic data with the Atlanta Fed's strong GDPNow estimate of 2.9% growth.
“Annual CPI levels for July are expected at 3.0% y/y and 3.2% y/y in the core,” ANZ analysts noted. “Although the trend is moderate, inflation is too high for the Fed to justify a 100bp market rate cut between September and the end of the year.”
“A breakdown in data or a strengthened disbursement process will be needed to deliver that.”
In other currencies, the dollar rose 0.17% to $0.6597, while the New Zealand dollar strengthened 0.3% to $0.6036.
Data on Tuesday showed Australian wages rose at their slowest pace for the year in the June quarter, falling short of expectations, while soft gains in the private sector suggested the labor market was slowing.
