China rate decision set to disappoint

Jan 22 – An interest rate decision in China kicks off the week in Asia on Monday with investors hoping – forlornly, perhaps – that the central bank will provide some much-needed relief for the country’s sluggish economy and creaking markets.

This will be followed by the Bank of Japan’s policy decision and guidance the next day – an equally anticipated event, but for different reasons – meaning trading activity and volume should start the week on a strong note.

Especially in foreign exchange.

The Chinese yuan and Japanese yen both go into their respective central bank meetings on the defensive against the dollar. The yuan last week touched a two-month low and the yen’s accumulated year-to-date losses reached 5%.

Indeed, out of nine Asian currencies only the Indian rupee is up against the dollar this year. And even then, only by a whisker.

The dollar is also up against every one of its rival G10 currencies even though the Fed is still expected to cut rates by more than any other major central bank in the world this year, despite the recent pullback.

Asian stocks should have a decent spring in their step on Monday after the S&P 500 hit a new all-time high on Friday.

The rise in global stocks was sparked by Taiwanese chipmaker Taiwan Semiconductor Manufacturing (TSMC), the world’s largest contract chipmaker. On Thursday it projected more than 20% growth in 2024 revenue on booming demand for high-end chips used in AI.

The MSCI Asia Pacific ex-Japan index rose more than 1% on Friday but still fell for a third consecutive week, and is down more than 5% year-to-date.

Chinese stocks are languishing around five-year lows, foreigners are pulling money out of the country, and the yuan is falling. Beijing is under pressure to act, but is nervous about the debt and FX risks associated with more stimulus.

The central bank on Monday is expected to leave the benchmark one- and five-year loan prime rates (LPR) unchanged at 3.45% and 4.20%, respectively. More disappointment for investors, or is it already priced into the currency and stocks?

Meanwhile, the BOJ is also expected to leave policy unchanged on Tuesday, and with inflation continuing its downward slide towards the BOJ’s 2% target, the pressure to ‘normalize’ policy and reverse negative interest rates is easing.

The yen is on the defensive and, despite an understandable wave of profit-taking after hitting 34-year highs, Japanese stocks could be set to rise again on Monday.

Other key events on the Asia/Pacific economic and policy calendar this week include South Korean GDP, Tokyo inflation, an interest rate decision in Malaysia, and consumer inflation figures from New Zealand, Vietnam, Singapore, Hong Kong, and Malaysia.

Here are key developments that could provide more direction to markets on Monday:

– China interest rate decision

– Malaysia CPI inflation (December)

– Hong Kong CPI inflation (December)

(By Jamie McGeever; Editing by Deepa Babington)

US yields keep climbing as prospects of imminent rate cuts wane

NEW YORK, Jan 19 – US Treasuries maintained a bearish bias on Friday as the market digested a string of solid economic data and braced for the prospect of interest rate cuts not being as imminent as many had hoped.

Treasury yields, which move inversely to prices, have been rising over the past few days as central bank officials pushed back against market expectations of a quick shift to lower rates. Data this week has also shown that US economic activity remains resilient despite interest rates at their highest level in decades, which suggests Federal Reserve policymakers will not rush to a more accommodative policy stance.

US consumer sentiment improved in January to the highest level since the summer of 2021 amid optimism over the outlook for inflation and household incomes, the University of Michigan’s survey of consumer sentiment showed on Friday.

The survey’s reading of one-year inflation expectations fell to 2.9% this month from 3.1% in December. Its five-year inflation outlook slipped to 2.8% from 2.9% in the prior month.

Meanwhile, the S&P 500 confirmed on Friday that it has been in a bull market since October 2022, as it notched a record-high close for the first time in two years on optimism around artificial intelligence.

The short-term interest rate futures market showed on Friday that traders were betting interest rate cuts will start in May, with the probability of a March cut dropping below 50%, down from 77% last week, according to CME Group data. Traders had been betting on a March start to Fed rate cuts since late last year, after Fed policymakers signaled they would probably reduce interest rates in 2024.

“It’s been a data-dependent market and that is what has been driving the market and the volatility,” said George Catrambone, DWS Group’s head of fixed income.

“For the moment, more resilience in the data will continue to push projections of cuts in March further out,” Catrambone added.

Atlanta Federal Reserve President Raphael Bostic said on Thursday he expected rate cuts to start in the third quarter. Chicago Fed President Austan Goolsbee on Friday said the Fed still needed weeks more of inflation data before any cut.

US Treasury benchmark 10-year yields were last at 4.145%, hitting their highest level in more than a month and registering their biggest weekly increase since October.

Two-year yields, which tend to more closely reflect monetary policy expectations, were up about five basis points to 4.408%, their highest in two weeks. Weekly gains in two-year yields have been the biggest since May last year.

Further out on the curve, 30-year yields hit an intra-day high of 4.403% on Friday, their highest since early December.

The curve comparing the yields on the 2/10 maturities was at minus 27 basis points – flatter, or more inverted, than Thursday.

Curve inversions occur when short-dated bonds yield more than longer-dated ones. The 2/10 part of the curve, which has been inverted since July 2022, is closely watched by investors as inversions have reliably preceded recessions.

“The economy may not be out of the woods yet with respect to a hard landing. Some further caution may be warranted,” said Joseph LaVorgna, chief economist at SMBC Nikko Securities in New York.

An inverted yield curve tends to un-invert and turn noticeably positive either shortly before or at the initial stage of recession, LaVorgna said in a note.

(Reporting by Davide Barbuscia and Herbert Lash; Editing by Hugh Lawson and Will Dunham)

Dollar edges lower but poised for weekly gain as early rate cut hopes dim

NEW YORK, Jan 19 – The US dollar edged lower on Friday, pausing after five straight sessions of gains but still poised for a weekly climb, as recent economic data and comments from Federal Reserve officials dampened expectations of rapid cuts in interest rates.

The greenback strengthened early in the session after economic data showed the University of Michigan’s preliminary reading on the overall index of consumer sentiment came in at 78.8 this month, the highest reading since July 2021, compared with 69.7 in December and the 70.0 estimate of economists polled by Reuters.

The data comes on the heels of solid labor market and retail sales data earlier this week indicating the economy remained firm.

Expectations for a cut from the Fed in March of at least 25 basis points (bps) have dipped below 50% according to CME’s FedWatch Tool, with traders now targeting May as the likely month for a rate cut announcement.

“The market is refusing to give up, it is pushing its ideas into the future, but it hasn’t changed its ideas,” said Joseph Trevisani, senior analyst at FXStreet in New York.

“The Fed is going to start lowering rates and the reason they’re going to start lowering rates is the economy is going to get weaker – this has been the mantra ever since the Fed pretty much started raising rates.”

The dollar index =USD, which tracks the greenback against a basket of six currencies, was down 0.08% at 103.26, on pace to snap a five-session win streak, but was up 0.8% on the week.

A steady stream of Fed officials, starting with Governor Christopher Waller on Tuesday, have pushed back on market expectations the central bank will embark on a path of fast reductions to interest rates. Waller said the Fed should proceed “methodically and carefully” until it is clear lower inflation will be sustained.

On Friday, Chicago Fed President Austan Goolsbee said weeks more of inflation data need to be in hand before any decision could be made to cut interest rates.

In addition, Federal Reserve Bank of San Francisco President Mary Daly said there is still a lot of work left to do on inflation and it is premature to think rate cuts are around the corner.

The euro was up 0.16% at USD 1.0891 against the dollar but is down about 0.5% for the week. J.P.Morgan on Friday pulled forward its expectations for the start of interest-rate cuts by the European Central Bank to June from September, but said it remained “cautious” about inflation and wage growth trends.

The yen was flat versus the greenback at 148.15. The Bank of Japan is scheduled to hold a policy meeting next Monday and Tuesday, and is likely to maintain its ultra-loose monetary settings. The dollar is up more than 2% against the Japanese currency this week and on track for its third straight weekly gain.

Earlier data showed Japan’s core inflation rate slowed to 2.3% in the year to December, its lowest annual pace since June 2022, taking the pressure off policymakers to make swift moves.

Sterling was last trading at USD 1.27, down 0.06% on the day after weakening to USD 1.2662 following data which showed UK retail sales slumped by the most in three years in December.

In cryptocurrencies, bitcoin gained 2.04% to USD 41,900.00 but was on track for its second straight week of declines as investors have taken profits following the US approval of spot bitcoin exchange-traded funds.

(Reporting by Chuck Mikolajczak; Editing by Jonathan Oatis)

Global equity funds see big outflows as rate outlook shifts

Jan 19 – Global equity funds witnessed hefty outflows in the week up to Jan. 17 as investors trimmed positions after central bankers in the US and Europe pushed back against market expectations of an early interest rate cut.

Investors pulled a net USD 8.68 billion out of global equity funds during the week, logging the third straight week of outflows, data from LSEG showed.

Hopes of a policy rate cut in March dimmed on Tuesday as US Federal Reserve Governor Christopher Waller cautioned against trimming rates until lower inflation can clearly be sustained, echoing remarks from some of his European counterparts.

The US and European equity funds saw net selling of USD 9.23 billion and USD 1.48 billion, respectively. Conversely, Asia funds attracted about USD 1.72 billion, the second successive week of inflows.

Global sectoral equity funds raked in about USD 329 million in inflows during the week. The tech and financials were the more popular sectors, with USD 713 million and USD 390 million, respectively, in net purchases.

The consumer discretionary sector, however, saw outflows worth USD 285 million.

Investors showed strong interest in debt funds, pumping a net USD 14.33 billion into global bond funds during the week, the biggest amount in about a year.

Corporate bond funds received USD 5.92 billion, the largest amount since at least April 2020. Government and high-yield bond funds also secured around USD 1.12 billion and USD 1.65 billion, respectively.

At the same time, investors exited about USD 28.51 billion worth of money market funds, breaking a three-week-long buying streak.

In the commodities segment, outflows from precious metal funds eased as investors withdrew USD 181 million when compared with about USD 805 million of net disposals in the previous week. Meanwhile, energy funds faced outflows of USD 209 million.

Data covering 27,982 funds in the emerging markets showed investors shed roughly USD 904 million worth of equity funds after a week of net buying. Bond funds, however, secured inflows for a fourth successive week, amounting to a net USD 198 million.

(Reporting by Gaurav Dogra in Bengaluru; Editing by Tasim Zahid)

Chinese fund managers dig deep into own pockets to launch equity funds

SHANGHAI/SINGAPORE Jan 19 – In the face of intense pressure from authorities to help revive a sickly stock market, Chinese fund management companies are increasingly launching equity funds that are bankrolled mostly by the firm’s own money.

China’s securities regulator has been nudging fund managers to prioritize the launch of equity products as authorities scramble to revive a stock market plumbing five-year lows.

In recent informal guidance, the regulator told some fund managers they needed to launch at least four equity funds before they open any new bond fund, in hopes of propping up the stock market in a way that some analysts think is unlikely to succeed.

Torn between the regulator’s guidance and investors’ apathy towards equities in an ailing economy, mutual fund companies are increasingly setting up so-called “sponsored funds”.

Under Chinese regulation, fund management companies can kick off sponsored funds with just 10 million yuan (USD 1.39 million) of seed money that must remain in the fund for three years.

That compares to the normal requirement for new funds to have at least 200 million yuan, or nearly USD 28 million, of assets and 200 investors before the launch.

“Fund performance is ugly and clients are suffering from losses, so money managers have to take money out of their own pockets,” said hedge fund manager Zhang Kaihua. “What else can they do?”

The number of sponsored equity funds and balanced funds that invest in both stocks and bonds jumped nearly 40% to 122 last year, according to fund consultancy Z-Ben Advisors.

Despite the burst of such funds, China’s blue-chip index has extended its decline in the new year, casting doubts over the effectiveness of the raft of policy measures regulators have announced since the middle of last year.

The impasse in markets has seen Chinese funds perish as rapidly as they are born. A total of 148 equity and balanced funds were forced to liquidate last year because of being too small to be viable, the most in five years.

Fund managers are under pressure to launch equity funds, but “in such a environment, you can hardly raise money,” said a Shanghai-based portfolio manager who is preparing to launch a sponsored fund.

“You have no choice but to invest with your own money first,” said the fund manager, who spoke on condition of anonymity.

The anaemic fund-raising by funds and a sliding stock market feed each other “in a vicious cycle that dents long-term investor confidence,” said Lei Meng, China equity strategist at UBS Securities.

LOWER THRESHOLD

Sponsored funds, which charge the usual management fees, will be wound up after three years if they do not have a required 200 million yuan in assets.

Top managers of sponsored funds include China Asset Management Co, E Fund Management Co, China Southern Asset Management Co and Fullgoal Fund Management, according to Z-Ben Advisors.

Wanjia Asset Management Co this month set up a 10 million yuan fund that invests in pharmaceutical stocks, almost entirely with its own money, a regulatory filing showed.

In December, Galaxy Asset Management set up a new materials equity fund LP68792679 after securing only four subscribers, according to a filing. Galaxy ended up contributing 10 million yuan, or 98.9% of the fund assets.

China Southern Asset Management declined to comment. Wanjia, Galaxy and the other named managers of sponsored funds did not respond immediately to requests for comment.

Bond funds are more popular with investors, but regulators have slowed vetting applications for fixed income products, instead speeding up the approval for equity funds.

“Once you get green light to launch an equity fund, you don’t want to waste it,” said another fund manager who also declined to be identified. “It’s also a condition to launch bond funds.”

Another reason behind the burst of sponsored funds is a hope among money managers that investors disappointed with the performance of existing funds will look for fresh opportunities, and hence a new lease of life for their business.

“Investors have been losing money in existing funds, triggering heavy redemptions and fund liquidation,” said hedge fund manager Zhang. “With new funds, portfolio managers can start afresh.”

(USD 1 = 7.1961 Chinese yuan renminbi)

(Reporting by Samuel Shen in Shanghai and Vidya Ranganathan in Singapore; Additional reporting by Jason Xue; Editing by Jamie Freed)

Oil drops slightly on China demand concerns but records weekly gain

NEW YORK, Jan 19 (Reuters) – Oil prices settled slightly lower on Friday but recorded a weekly gain as Middle East tensions and disruptions to oil output offset concerns about the Chinese and global economies.

Brent futures settled 54 cents lower at USD 78.56 a barrel. US West Texas Intermediate crude fell 67 cents to settle at USD 73.41.

For the week, Brent gained about 0.5% while the US benchmark rose over 1%.

In China, slower-than-expected economic growth in the fourth quarter raised doubts about forecasts that demand there will drive global oil growth in 2024.

“The Chinese equity market this week dropped to near a five-year low,” said Bob Yawger, director of energy futures at Mizuho Bank. The indication for weaker demand drove crude prices down on Friday.

In the Middle East, geopolitical risks supported prices for the week.

On Friday, tensions escalated in Gaza as Israeli forces pushed south against Hamas militants, while earlier in the week, the US launched new strikes against Houthi anti-ship missiles aimed at the Red Sea.

Although conflict in the Middle East has not shut any oil production, supply outages continued in Libya.

In the US, about 30% of oil output in North Dakota, the country’s third largest producing state, remained shut due to extreme cold, the state’s pipeline authority said on Friday.

Output had been cut by some 700,000 bpd, or more than half, midweek.

It could take a month for production to return to normal levels, the state regulator said on Friday.

“Supply disruptions remain an upside risk but there are downside risks too, including the global economy,” Craig Erlam, analyst at brokerage OANDA, said.

Meanwhile, the number of oil rigs operating in the US, an early indictor of production, fell by two to 497 this week, Baker Hughes said on Friday.

The International Energy Agency this week raised its 2024 global demand forecast, but its projection is half that of producer group OPEC. The Paris-based agency also said that – barring significant disruptions to flows – the market looked reasonably well supplied in 2024.

“The forecast for global oil demand growth remains unclear, with stakeholders and research institutions providing widely differing projections,” analyst Bjarne Schieldrop of SEB said.

The premium of the first-month Brent contract to the six-month contract rose to as much as USD 2.15 a barrel on Friday, the highest since November. This structure, called backwardation, indicates a perception of tighter supply for prompt delivery.

Money managers cut their net long US crude futures and options positions in the week to Jan. 16, the US Commodity Futures Trading Commission (CFTC) said on Friday.

(Additional reporting by Alex Lawler, Yuka Obayashi and Andrew Hayley; editing by Jason Neely, Louise Heavens, Barbara Lewis, Jonathan Oatis, and David Gregorio)

Bulls bank on Japan inflation cooling further

Jan 19 – The number one focus for investors in Asia on Friday will be the latest Japanese consumer inflation figures, with markets across the region hoping to draw support from the strong rise on world markets the day before and end a torrid week on a high.

The MSCI Asia Pacific ex-Japan index is down 3.7% this week, on track for its biggest weekly loss since August. After jumping 6.6% higher last week for its best performance in nearly two years, Japan’s Nikkei is also in the red.

But only just. A soft inflation number that raises more questions about the Bank of Japan’s policy normalization and eventual move toward positive interest rates could be the catalyst for a Friday buying frenzy.

Japan’s annual headline rate of inflation crossed above the BOJ’s 2% target in April 2022 and has been there ever since. The retreat from its 4.3% peak a year ago has been slow, and in November it had eased to 2.8%.

A sizeable decline in December would add to the weight of evidence that price pressures are lifting. This has prompted many investors and analysts to question how quickly the BOJ will normalize policy and lift interest rates into positive territory.

Economists expect annual core inflation to cool to 2.3% from 2.5%, which would be the lowest since June 2022.

Weaker-than-expected machinery orders and recent dovish comments from BOJ Governor Kazuo Ueda have pushed the yen back down toward the 150.00 per dollar level. It is down 5% so far this month, on for its biggest monthly slide since June 2022.

None of the 29 economists in a Jan. 9-16 Reuters poll expect the BOJ to raise its short-term deposit rate of minus 0.1% at its policy meeting next week. That is down from 14%, or four of 28 economists, who expected a change in a December survey.

More broadly, risk assets rebounded on Thursday after days of being beaten down, as the recent surge in global bond yields slowed down dramatically and a renewed bout of optimism around AI boosted tech stocks.

US-listed shares of Taiwan Semiconductor Manufacturing (TSMC) were among the biggest winners on Wall Street, jumping 8% after the world’s largest contract semiconductor maker projected 2024 revenue growth of more than 20%.

The yuan also goes into the last trading day of the week on the defensive, at a two-month low against the dollar, but a weakening domestic currency is not having the positive impact on Chinese stocks like it is in Japan.

Here are key developments that could provide more direction to markets on Friday:

– Japan inflation (December)

– New Zealand PMI (December)

– Malaysia trade (December)

(By Jamie McGeever; Editing by Bill Berkrot)

S&P 500 ends near record high as AI optimism lifts chipmakers

Jan 18 – US stocks ended sharply up on Thursday, with the S&P 500 approaching record highs as AI optimism drove gains in Nvidia and other chipmakers.

US-listed shares of Taiwan Semiconductor Manufacturing (TSMC) soared nearly 10% after the world’s largest contract semiconductor maker projected 2024 revenue growth of more than 20% on booming demand for high-end chips used in artificial-intelligence applications.

Heavyweight chipmaker Nvidia rose 1.9% to a record high, and it was the most-traded company on Wall Street, with almost USD 28 billion worth of shares exchanged. Rival Advanced Micro Devices rose 1.6% and also notched a record high.

Broadcom, Qualcomm, and Marvell Technology gained more than 3% each. The Philadelphia SE semiconductor index rallied 3.4% and approached its December 2023 record high.

“AI has caused this industry to have a ‘rip your face off’ rally, and I don’t think it’s stopping anytime soon,” said Jake Dollarhide, CEO of Longbow Asset Management.

Apple jumped 3.3% after BofA Global Research upgraded the iPhone maker’s stock to “buy” from “neutral.” That helped the S&P 500 information technology index rise 2% and hit a record high.

The S&P 500 climbed 0.88% to end the session at 4,780.94 points. The benchmark is down just 0.3% from its record-high close in January 2022.

The Nasdaq gained 1.35% to 15,055.65 points, while the Dow Jones Industrial Average rose 0.54% to 37,468.61 points.

Data showed the number of Americans filing new claims for unemployment benefits fell last week to a late-2022 low, suggesting solid job growth in January.

Wall Street has wavered in recent sessions as investors became less sure the Federal Reserve will begin cutting interest rates in March.

The S&P 500 lost ground on Tuesday and Wednesday following strong December retail sales data and after policymakers talked down expectations for an early start to rate cuts.

Traders now see a 56% chance for a 25-basis-point rate cut in March, compared with a chance above 80% a month ago, according to the CME Group’s FedWatch Tool.

Interest rate-sensitive sectors dipped, with the S&P 500 real estate index down 0.6% and utilities index losing 1.05%.

Atlanta Federal Reserve President Raphael Bostic said he was open to reducing rates sooner than he had anticipated if there is “convincing” evidence in coming months that inflation is falling faster than he expected. Bostic had previously said he expected it would be appropriate to cut rates in the second half of 2024.

Humana dropped 8% after the health insurer forecast fourth-quarter medical costs to be higher than previously expected. Peer UnitedHealth fell 1.6%.

KeyCorp dropped 4.6% after the lender posted a decline in fourth-quarter profit, while Birkenstock sank about 8% after missing quarterly profit expectations.

Spirit Airlines ended down more than 7% after news it is looking at options to refinance its debt and is not considering restructuring.

Advancing issues outnumbered falling ones within the S&P 500 by a two-to-one ratio.

The S&P 500 posted 30 new highs and seven new lows; the Nasdaq recorded 56 new highs and 180 new lows.

Volume on US exchanges was relatively heavy, with 11.8 billion shares traded, compared with an average of 11.5 billion shares over the previous 20 sessions.

(Reporting by Noel Randewich in Oakland, California; Additional reporting by Johann M Cherian and Ankika Biswas in Bengaluru; Editing by Shounak Dasgupta and Matthew Lewis)

US bonds keep bearish tone after strong jobs data

NEW YORK, Jan 18 – US Treasury yields inched higher on Thursday after data showing job growth remains solid, which strengthened the argument of central bank officials in recent days that they will not rush to lower interest rates.

Yields, which move inversely to prices, had declined overnight partly because of a flight to safety to US Treasuries amid fears of an escalation of the conflict in the Middle East after Pakistan fired a retaliatory strike at Iran.

But the bearish bias that characterized the bond market this week took hold again after the Labor Department said on Thursday that the number of Americans filing new claims for unemployment benefits fell last week to the lowest level since late 2022, suggesting job growth likely remained solid in January.

The data followed a series of economic indicators in recent days pointing to resilience in the economy despite interest rates remaining at their highest level in decades, suggesting the Federal Reserve may not move toward less restrictive monetary conditions as fast as the market expected.

“This certainly supports the view that maybe (rate cuts) will not be in March and maybe it will be in June,” said Thomas Hayes, chairman and managing member of New York-based Great Hill Capital. “But, in the grand scheme of things, inflation is dropping like a rock and they will be cutting this year. The question is how many.”

Short-term rate futures markets on Thursday were still signaling consensus around a first rate cut in March, even though that had a 55% probability, down from 70% last week. Meanwhile, the probability of a first rate cut in May was at 46%, up from 30% last week, according to CME Group data.

“The March rate cut odds are slipping through the fingers of the market … time is ticking right now and the data has been really strong,” said Matthew Miskin, co-chief investment strategist at John Hancock Investment Management.

Atlanta Federal Reserve President Raphael Bostic said on Thursday he was open to lower rates sooner than he had anticipated, depending on how quickly inflation falls, but that the baseline was for rate cuts to start in the third quarter.

Benchmark 10-year yields gained 4 basis points from Wednesday to 4.144%, and yields were also higher for other medium- to long-term maturities. Two-year yields were unchanged at 4.356% after jumping on Wednesday.

The curve comparing two- and 10-year yields, which when inverted is generally seen as a harbinger of recession, steepened slightly to minus 21.7 basis points. Still, earlier this week the yield spread between the two maturities went to about minus 16 basis points – the smallest inversion of that part of the curve since November.

On the supply side, the Treasury department saw strong demand for an USD 18 billion 10-year Treasury Inflation-Protected Securities (TIPS) auction. The notes were sold at a high yield of 1.81%, more than 2 basis points below the expected rate at the time of the bid deadline, a sign that investors did not demand a premium to absorb the issuance.

The bid-to-cover ratio, a measure of demand, was 2.62, above a one-year average of 2.44. Indirect bidders took down 79% of supply, compared with a one-year average of 76%.

Post-auction, US 10-year real yields declined to 1.804%. The breakeven rate – a proxy of inflation expectations over the next 10 years – stood at 2.34%, up from 2.174% at the end of last year.

(Reporting by Davide Barbuscia; Editing by Bernadette Baum and Jonathan Oatis)

Dollar gains for fifth straight session on solid labor data

NEW YORK, Jan 18 – The dollar index climbed for a fifth straight session on Thursday after labor market data showed job growth, keeping expectations for an interest rate cut from the Federal Reserve in check.

Initial claims for state unemployment benefits dropped 16,000 to a seasonally adjusted 187,000 for the week ended Jan. 13, the lowest level since September 2022, the Labor Department said on Thursday, short of the 207,000 expectation of economists polled by Reuters.

The data followed a stronger-than-expected retail sales report on Wednesday.

“The market’s doing what it loves to do and squeeze people out of crowded positioning. Ever since the start of the year, everything sort of flipped,” said Erik Bregar, director, FX & precious metals risk management at Silver Gold Bull in Toronto.

“You’ve had central bankers now push back on 2024 rate cut pricing, and I’d say on balance, economic data has been better than expected.”

The US dollar index =USD, which measures the currency against a basket of six peers, was up 0.14% at 103.47, after reaching 103.69 on Wednesday, its highest since Dec. 13. It was on track for its fifth straight session of gains, its longest streak since August.

Expectations for a cut from the Fed in March of at least 25 basis points (bps) are currently at 57.1%, according to CME’s FedWatch Tool, compared with 55.5% in the prior session and a decline from the 73.2% a week ago.

A separate report from the US Commerce Department showed single-family homebuilding took a breather in December after a recent stretch of gains. New construction remains underpinned by a shortage of previously owned houses for sale.

Fed officials, including Governor Christopher Waller this week, have pushed back against expectations of an aggressive round of rate cuts, suggesting the speed and timing will be slower than market participants had initially priced in.

Atlanta Federal Reserve President Raphael Bostic said on Thursday he was open to reducing US interest rates sooner than the third quarter he had anticipated if there was “convincing” evidence in coming months that inflation is falling faster than he expected.

The dollar was roughly even against the yen at 148.14 on Wednesday after rising to 148.52 on Wednesday, its strongest since Nov. 28.

The Bank of Japan (BOJ) is scheduled to hold a policy meeting next Monday and Tuesday, and is likely to maintain its ultra-loose monetary settings.

The euro was down 0.14% at USD 1.0866 after accounts from the European Central Bank’s December meeting showed policymakers appeared fairly confident that inflation was heading back to target, but saw risks that still warranted steady policy and high borrowing costs.

Sterling was up 0.17% at USD 1.269 GBP=, building on gains from the prior session when data showed inflation unexpectedly accelerated in December, buttressing expectations the Bank of England will be slower to cut rates than its peers.

In cryptocurrencies, bitcoin fell 3.09% to USD 41,318.00.

(Reporting by Chuck Mikolajczak; editing by Barbara Lewis and Jonathan Oatis)

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