Rand suffers, as hot inflation cools Fed cut bets

THE dollar traded near three-month highs to major peers on Wednesday as traders pushed back bets for a first Federal Reserve interest rate cut following surprisingly hot US inflation figures overnight.

On Wednesday morning, the rand was trading at R19,0827/US$ after hitting R19.1672 - its weakest level in more than three weeks - overnight.

The US currency's push above 150 yen for the first time since Nov. 17 spurred Japan's top currency diplomat to hint at the risk of intervention if "rapid," "speculative" yen declines continue.

Federal funds futures currently price in no rate cut in March and a lower than 50 percent chance of easing in May, according to LSEG's rate probability app, after the US consumer price index (CPI) in January gained 3,1 percent from a year earlier, versus an estimated 2,9 percent rise.

"Fed officials have commented they are waiting for data to show inflation is coming and will stay down - this report undermined that assumption," said James Kniveton, senior corporate FX dealer at Convera.

"Fed expectations are pushing up against Japanese intervention expectations, and for now who the winner of this contest will be remains unknown," he added.

Traders will watch to see if Bank of Japan Governor Kazuo Ueda adds his voice to warnings about a weak yen's impact on the economy, and will also want to hear how Fed speakers this week interpret the inflation data, Kniveton said.

Japan's top currency diplomat, Masato Kanda, said on Wednesday that officials were "closely watching FX moves with a sense of urgency" and "will take appropriate actions if needed". — Reuters