The dollar was also lifted by rising Treasury yields after a lacklustre debt auction for sales of two-year and five-year notes that raised doubts about demand for U.S. government debt.
The euro was 0.06% lower at $1.0850 but on course for a 1.7% gain for the month, its first month of gains in 2024. Sterling was last at $1.2754, on course for a 2% gain in May.
The Australian dollar spiked higher before steadying, up 0.08% at $0.6654 after Australian consumer price inflation unexpectedly rose to a five-month high in April, adding to risks the next move in interest rates might be upward.
Data on Tuesday showed U.S. consumer confidence unexpectedly improved in May after deteriorating for three straight months, but worries about inflation persisted and many households expected higher interest rates over the next year. The mixed survey comes as markets contemplate the Fed’s next move, with markets now pricing in 34 basis points of cuts this year compared with 150 bps of easing priced in at the start of 2024. A rate cut in September is a coin toss as still sticky inflation along with pockets of weakness in the world’s largest economy amid a strong labour market keep shifting expectations around U.S. rates. Market focus this week will be on a slew of inflation reports, with German inflation data due on Wednesday and the wider euro zone’s reading on Friday.
The main event though will be when the U.S. core personal consumption expenditures (PCE) price index report – the Federal Reserve’s preferred measure of inflation – is released on Friday. Expectations are for it to hold steady on a monthly basis.
Against a basket of currencies, the dollar index was little changed at 104.67, inching away from the near two-week low of 104.33 it touched on Tuesday.
“FX markets continue to mark time in anticipation of core PCE data later this week,” said Christopher Wong, currency strategist at OCBC. “We should continue to see 104-105 holding up until the next catalyst comes along.”
Meanwhile, the yen touched a four-week low of 157.41 per dollar early on Wednesday as the currency inches back to levels that led to bouts of suspected interventions from Tokyo at the end of April and early May.
The yen hit a 34-year low of 160.245 on April 29, resulting in at least two suspected interventions that week, with Japanese authorities estimated to have spent more than 9 trillion yen ($57.21 billion) to prop up the frail currency.
“Perhaps Japanese officials sound out verbal warnings again but without tangible action it’s likely dollar/yen marches towards the levels seen in late April,” Prashant Newnaha, a senior Asia-Pacific rates strategist at TD Securities.
The yen was also broadly weaker against other currencies. The pound was 0.13% higher at 200.68 yen, the strongest since August 2008, while the euro touched a one-month high of 170.795 yen earlier in the session.
The yen, which is sensitive to Treasury yields, is down 10% for the year against the dollar but may yet scrape a monthly gain in May.
In Asian hours, the benchmark U.S. 10-year yield was at 4.542%, the highest since May 3.
($1 = 157.3100 yen)