US dollar dips vs yen

The US Dollar (USD) slipped against the yen on Tuesday in a choppy session, after Federal Reserve Governor Christopher Waller reiterated that rate hikes are unlikely at this point since inflation looks like it is on its way to meeting the central bank’s 2% target.

Against other currencies, the greenback was mostly flat ahead of the U.S. Memorial Day holiday next week, including month-end, which typically spurs a flurry of activity in the market.

In the absence of economic data this week, market participants are more tuned in to comments from Fed officials.

“More recent data on the economy indicate that restrictive monetary policy is helping to cool off aggregate demand and the inflation data for April suggests that progress toward 2% has likely resumed,” Waller said in remarks prepared for delivery to the Peterson Institute for International Economics.

“Central bankers should never say never, but the data suggests that inflation isn’t accelerating, and I believe that further increases in the policy rate are probably unnecessary.”
Fed Chair Jerome Powell, in his press briefing after the Fed held rates steady earlier this month, also ruled out rate hikes.

“What that does is it takes out the tail-risk scenario that the Fed is still thinking about hikes because they are effectively questioning their assumption that rates are restrictive enough,” said Vishal Khanduha, co-head of Broad Markets Fixed Income at Morgan Stanley Investment Management.

“Chairman Powell and other members of the Fed have done a good job of clarifying rate hikes very clearly. That in our mind is more of a market-moving news versus cuts being priced in.”

In late morning trading, the dollar was down 0.1% against the yen at 156.065 yen . This currency pair typically tracks interest rate move expectations: pricing in cuts instead of hikes weighs in the dollar as it reduces the yield on U.S. debt assets such as Treasuries.

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