US dollar drifts lower ahead of inflation data; yen nears 34-year lows

The dollar slipped on Monday in thin trading as investors focused on U.S. inflation data later this week, while the yen slipped to near 34-year lows versus the greenback as traders remained alert for any potential action from Japanese authorities to support the weakening currency.

The U.S. dollar fluctuated last week as traders digested a mixed bag of economic data, with a slowdown in services growth followed by unexpectedly strong hiring numbers that prompted the market to pare bets on Federal Reserve rate cuts this year.

The dollar index - which tracks the greenback against six other major currencies - was last down 0.2% at 104.19, while U.S. Treasury yields, which reflect interest rate move expectations, pushed higher.

Against the yen, the dollar firmed 0.1% to 151.745, putting it within a whisker of its highest since July 1990.

Japanese workers' real wages fell in February for a 23rd consecutive month, data showed on Monday, suggesting higher prices kept up pressure on consumers' spending appetite.

Inflation-adjusted real wages, a barometer of consumer purchasing power, fell 1.3% in February from a year earlier, data from Japan's Labor ministry showed. It followed a revised decline of 1.1% in January.

"It seems to me like traders are testing the resolve of Japanese currency officials to keep that 152 level as a true resistance point," said Helen Given, FX trader at Monex USA in Washington.

"After Japanese real wages posted yet another decline...and given the current global risk climate, the yen's role as a traditional safe haven has been diminished of late and investors are flocking to gold and the U.S. dollar instead."

Japanese Prime Minister Fumio Kishida said on Friday authorities will use "all available means" to deal with excessive yen falls, stressing Tokyo's readiness to intervene in the market to prop up the currency.
 

Bank of Japan Governor Kazuo Ueda addressed the country's parliament on Monday, but gave little away on monetary policy and said he had succeeded in adopting a simpler policy framework.

A former top currency official in Japan, Takehiko Nakao, told Reuters that authorities could intervene in the foreign exchange market to stem sharp falls in the yen "at any time" if the moves were sufficient.

In the United States, the main focus is on U.S. consumer price inflation for March due on Wednesday. Economists expect the headline consumer price index (CPI) to have risen 0.3 on a monthly basis, compared with 0.4% in February, according to a Reuters poll. Core CPI is also seen rising 0.3% for the month of March.

Ahead of the CPI data and after a strong jobs report last Friday, the U.S. rate futures market has reduced the odds of a June rate cut to 52.1%, down from 58% a week ago, the CME's FedWatch tool showed.

The market has also pared back expectations for the number of rate cuts this year to two, from three to four a few weeks ago, according to LSEG's rate probability app.

In the euro zone, currency investors will be looking to the European Central Bank's (ECB) policy meeting on Thursday. The euro was up 0.1% at $1.0850, while sterling was flat at $1.2643. The base case for the ECB is to hold rates this week and possibly reinforce the possibility of a cut in June. But while the ECB is increasingly confident that inflation is heading back to its 2% target, it has remained vague about further easing. In cryptocurrencies, bitcoin was up 6.5% at $72,063 after hitting a three-week high of 72,732.59 earlier in the session.
 

(Reporting by Gertrude Chavez-Dreyfuss in New York and Iain Withers in London; Additional reporting by Vidya Ranganathan in Singapore; Editing by Devika Syamnath and Angus MacSwan, Kirsten Donovan)