By Brigid Riley
TOKYO (Reuters) -The U.S. dollar traded in a narrow range on Thursday even as investors ramped up bets that the Federal Reserve will cut interest rates next week, while the yen slid following fresh media reports that the Bank of Japan may stand pat.
The Australian dollar surged after domestic employment data beat forecasts, indicating a far more resilient labour market than many had expected, while the euro held steady ahead of the European Central Bank's monetary policy decision later in the day.
The U.S. consumer price index report met forecasts on Wednesday with a 0.3% rise in November, the largest gain since April after advancing 0.2% for four straight months.
Markets now see a 98.6% probability the Fed will cut rates by 25 basis points at its Dec. 17-18 meeting, compared with 78.1% a week ago, the CME FedWatch tool showed.
The U.S. producer price index will be released later on Thursday, which may further cement those bets.
The Fed's rate path beyond December is less certain given core CPI has still risen for several months in a row, said Carol Kong, a currency strategist at Commonwealth Bank of Australia.
"The USD will likely stay bid while concerns about a stall in disinflation underpin current market pricing for a more gradual pace of FOMC rate cuts next year," she said.
Markets are also pondering how President-elect Donald Trump's proposed tariff and tax cut policies, which are expected to be inflationary, could impact the Fed's outlook.
A rise in U.S. Treasury yields offered support for the dollar. [US/]
The dollar index, which measures the greenback against six major peers, was mostly unchanged at 106.580 after rising to its highest since Nov. 27 at 106.81 on Wednesday.
The dollar rose 0.17% to 152.72 yen, after hitting a two-week high of 152.845 yen the previous day as market players trimmed back bets for a rate hike in Japan next week.
Reuters reported on Thursday that the BOJ is leaning toward keeping rates steady, as policymakers prefer to spend more time scrutinising overseas risks and clues on next year's wage outlook.
But with markets now eyeing a rate hike just a month later in January, the shift has not really become a big driver for investors to pile into the dollar against the yen, said Akira Moroga, chief market strategist at Aozora Bank.
"There were expectations for December, so dollar/yen has been rising from around 150 yen to about the 200-day average," he said.
Elsewhere in Asia, traders awaited any news from China's closed-door Central Economic Work Conference this week.
A Reuters report that China was considering allowing a weaker currency next year had the yuan on the defensive.
The yuan was last trading around 7.2673 per dollar, up about 0.18% in offshore trading.
The Australian dollar was up 0.77% at $0.6418, pulling further away from the just over one-year low of $0.63370 touched on Wednesday.
The kiwi climbed 0.41% to $0.58075, after hitting its lowest since November 2022 at $0.57625 in the previous session.
The euro traded at 1.0507, up 0.10% ahead of the ECB's monetary policy meeting later on Thursday, where it is widely expected to deliver a quarter-basis-point cut. The market's focus will be on any hints of the central bank's rate path outlook.
Sterling was up 0.12% at $1.2766.
The Swiss franc was nearly flat at 0.88375 per dollar, with markets weighing the prospect of a half-point rate cut by the Swiss National Bank on Thursday.
(Reporting by Brigid Riley; Editing by Saad Sayeed and Jamie Freed)
Did you find this insightful?
Bad
Just Okay
Amazing