Dollar Stability Amid Yen's Rise and Inflation Movements

The dollar steadied after cooling U.S. inflation data, while the yen surged on potential Japanese rate hikes. The yen's strength came as talks at the Bank of Japan indicated possible rate increases. Meanwhile, the euro held steady, and traders reacted to easing inflation by buying stocks.

The dollar maintained stability on Thursday following a decline, as U.S. inflation cooled and bond yields fell. In contrast, the yen reached a one-month high amidst increasing speculation of an interest rate hike in Japan. The yen displayed the most significant movement against the dollar after unexpectedly soft U.S. inflation data, extending its gains in Asian markets. Simultaneously, increased odds for Federal Reserve rate cuts coincided with discussions of a potential Bank of Japan rate hike slated for next week.

Trading as strong as 155.21 per dollar, the yen marked its highest since December 19, gaining approximately 1.2% in the last two sessions. Remarks from Bank of Japan Governor Kazuo Ueda and Deputy Ryozo Himino suggest that rate hikes will at least be on the agenda during next week's policy meeting, with markets anticipating about a 78% chance of a 25 basis point increase.

Despite a ceasefire deal in Gaza causing minimal direct reaction in foreign exchange markets, the Israeli shekel did touch a one-month high. Core U.S. inflation reached 0.2% month-on-month in December, matching forecasts but below November's 0.3%. On an annualized basis, the 3.2% reading fell short of expectations, reinforcing the trend of soft inflation readings from Britain and comments from a Bank of England policymaker about rate cuts.

(With inputs from agencies.)