Dollar little changed as U.S. inflation data poses quandary for Fed

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NEW YORK — The dollar traded little

changed on Tuesday after strong consumer price data revived the

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likelihood that the Federal Reserve will hike interest rates

next week as fears of turmoil spreading in the banking sector

faded.

The dollar index, a measure of the greenback

against six other currencies,

fell 0.087%

as Treasury yields jumped a day after the two-year note,

which moves in step with interest rate expectations, plunged the

most in a single day since 1987.

The euro

edged up 0.09% to

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$

1.0739

, but the dollar gained against the safe-haven yen and Swiss

franc.

Fed funds futures showed the market’s risk adverse mood

in recent days eased as bets that the Fed would stand pat at its

policy meeting March 21-22 declined. That probability fell to

28.4% from 43.9% on Monday, according to CME’s FedWatch Tool.

But with the likelihood of a 50 basis point hike next

week off the table, the dollar’s recent strength from higher

rates on Treasury notes than foreign government debt also

retreated.

The collapse of Silicon Valley Bank and Signature Bank

last week suggests greater Fed scrutiny of the banking sector

may be in store as credit tightens.

“Risk around bank lending is skewed to the downside,”

said Thierry Wizman, Macquarie global rates and FX strategist in

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New York. “With the regulatory burden and the prospect of net

interest margins at banks getting squeezed, you can make the

case that it’s only going get worse.”

Americans faced persistently higher costs for rental

housing and food in February, challenging the Fed to bring

inflation under control while stabilizing financial markets

after the bank failures.

Futures priced in perhaps two Fed rate cuts by year’s

end, with the terminal rate seen at 4.179% in December, down

from more than 5% last week.

The

Consumer Price Index (CPI)

rose 0.4% last month after accelerating 0.5% in January. In

the 12 months through February, the CPI increased 6.0%, a slower

pace than the 6.4% annualized gain in January, but still far off

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the Fed’s 2% target.

The Japanese yen weakened 0.69% at 134.13 per dollar, while

the greenback rose rose 0.15% against the Swiss franc.

Sterling was

down 0.05%

at $

1.2175

after jumping 1.22% on Monday. Data on Tuesday showed UK

pay growth slowed in the three months to January.

Currency bid prices at 4:08 p.m. (2008 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 103.5800 103.6800 -0.09% 0.087% +104.0500 +103.4900

Euro/Dollar $1.0739 $1.0729 +0.08% +0.21% +$1.0750 +$1.0679

Dollar/Yen 134.1300 133.2300 +0.69% +2.32% +134.8950 +133.0300

Euro/Yen 144.05 142.93 +0.78% +2.67% +144.4100 +142.5500

Dollar/Swiss 0.9131 0.9120 +0.11% -1.26% +0.9164 +0.9096

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Sterling/Dollar $1.2174 $1.2183 -0.07% +0.67% +$1.2203 +$1.2139

Dollar/Canadian 1.3678 1.3732 -0.39% +0.96% +1.3750 +1.3653

Aussie/Dollar $0.6682 $0.6668 +0.26% -1.93% +$0.6696 +$0.6633

Euro/Swiss 0.9804 0.9782 +0.22% -0.92% +0.9823 +0.9748

Euro/Sterling 0.8819 0.8806 +0.15% -0.28% +0.8836 +0.8779

NZ Dollar/Dollar $0.6238 $0.6220 +0.32% -1.72% +$0.6247 +$0.6180

Dollar/Norway 10.5370 10.5520 -0.07% +7.45% +10.6420 +10.5140

Euro/Norway 11.3160 11.3180 -0.02% +7.84% +11.3950 +11.2758

Dollar/Sweden 10.4611 10.5914 -1.17% +0.51% +10.6623 +10.4550

Euro/Sweden 11.2354 11.3686 -1.17% +0.77% +11.3947 +11.2230

(Reporting by Herbert Lash; additional reporting by Harry

Robertson in London; Editing by Andrew Heavens, Angus MacSwan

and Richard Chang)