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© Reuters. FILE PHOTO: Japanese Yen and U.S. dollar banknotes are seen in this illustration taken March 10, 2023. REUTERS/Dado Ruvic/Illustration/File Photo

By Tom Westbrook and Alun John

SINGAPORE/LONDON (Reuters) -The dollar tracked toward monthly gains on Thursday as European inflation data trickled in and ahead of highly-anticipated U.S. data, while the sliding yen made back some ground after a policymaker hinted at the need to exit ultra-easy policies.

was on the charge, topping $63,000 early in the European morning for a gain of nearly 50% in February. The monthly rise is the largest since December 2020, and a record high above $69,000 is within sight. It was last at $63,051.

The dollar was down 0.66% against the yen at 149.75 after Bank of Japan board member Hajime Takata said he felt there were finally prospects for achieving the bank’s 2% inflation target, paving the way to leave behind negative rates and yield caps.

If sustained that would be the dollar’s biggest daily fall against the yen in 2024, though that’s in large part a reflection of how few days of strength the yen has had this year – the dollar is still up 1.8% on the Japanese currency in February.

“Takata’s remarks should add to conviction that an earlier than expected hike at the March meeting should not be ruled out,” said Christopher Wong, currency strategist at OCBC.

“With JPY shorts at record highs, unwinding of shorts should see JPY bears run for cover.”

The euro was 0.1% higher at $1.0847 and largely flat for the month, as was sterling at $1.2670.

The common currency strengthened a fraction after German provincial flash inflation data showed month-on-month CPI was higher in February than in January in several of the first provinces to report figures.

More provincial data and Germany-wide inflation is due later in the day. French consumer prices rose 3.1% year-on-year in February, slightly more than expected on higher energy prices, while prices in Spain rose 2.9%, in line with expectations, data also released Thursday showed.

The Federal Reserve’s favoured measure of U.S. inflation, and the hence most important inflation print for global markets, – the core personal consumption expenditures (PCE) price index – is due at 1330 GMT on Thursday.

Forecasts are for a rise of 0.4% month on month.

It was not long ago investors were hoping for just a 0.2% increase but high readings on consumer and producer prices suggest the risk is for a result as high as 0.5%.

“A stronger than expected PCE deflator can cause markets to reduce pricing for a May rate cut even further, supporting U.S. dollar,” said Commonwealth Bank of Australia (OTC:) currency strategist Kristina Clifton.

Markets price about a 20% chance of a Fed easing in May, and have pushed out the likely timing of a cut to June. Futures imply a little more than three 25 basis point cuts this year, compared to five at the start of the month.

The Australian and New Zealand dollars have lost ground in February as expectations firmed that rate hikes have finished down under.

The New Zealand dollar in particular nursed losses at $0.6091, having dropped 1.2% on the dollar a day ago when the central bank held rates and surprised markets with a downward tweak to its rates forecast. The Australian dollar ticked 0.14% higher to $0.6504 on Thursday for a monthly drop of 0.8%.


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