The release of US Core PCE inflation data and Fed Chair Jerome Powell's speech tomorrow may unexpectedly affect the US dollar rate.

The greenback strengthened against most major currencies in trading on Thursday (28/March) after a US Federal Reserve official said there was no rush to cut interest rates. The US Dollar Index (DXY) was perched at around 104.45, even touching its highest level since mid-February at 104.70s. Meanwhile, traders and investors are watching for the release of one of the key economic data from the United States tomorrow.


Christopher Waller, a member of the Federal Reserve Board of Governors, said that the recent disappointing inflation data supports the US central bank's delaying the lowering of its short-term interest rate target. He says the latest data "tells me that it is prudent to keep interest rates at their current restrictive levels, perhaps longer than previously thought, to help keep inflation on a sustainable trajectory toward 2%."

The statement delivered on Wednesday evening reduced market expectations for a Fed rate cut in June 2024. CME FedWatch shows the chance of falling from around 67% to just 60%.

"Waller is one of the Fed's key policy makers and, while I don't see this as a big move, the statement has given momentum to a market that was stuck in a very tight trading range," said Lee Hardman, senior currency strategist at MUFG.

Market participants now await the release of US Core PCE inflation data due on Friday and a speech from Fed Chair Jerome Powell. Both could unexpectedly affect the US dollar rate, given that liquidity is thin with many exchanges closed for Good Friday celebrations.

Some experts highlight the movement of USD/JPY in particular. The pair have been held back by Japanese officials' warnings in the 151.00-152.00 range over the past few days, but traders still anticipate a breakout to higher ranges.

If the Core PCE inflation data delivers a supportive surprise for the dollar, the yen is in danger of suffering the most severe slump. Takeshi Ishida, currency strategist at Resona Holdings, argues that while there may be some attempts to contain the move towards 152 for now, Friday's US inflation data carries significant risks.

"When dollar/yen touches 152, I think there may be a sharp upward movement, and that's when intervention may take place," Ishida said, as quoted by Reuters.