NEW YORK/MILAN >> The U.S. dollar slipped against the yen today in a choppy session, after Federal Reserve Governor Christopher Waller reiterated that rate hikes are unlikely at this point since inflation looks like it is on its way to meeting the central bank’s 2% target.

Against other currencies, the greenback was mostly flat ahead of the U.S. Memorial Day holiday next week, including month-end, which typically spurs a flurry of activity in the market.

In the absence of economic data this week, market participants are more tuned in to comments from Fed officials.

“More recent data on the economy indicate that restrictive monetary policy is helping to cool off aggregate demand and the inflation data for April suggests that progress toward 2% has likely resumed,” Waller said in remarks prepared for delivery to the Peterson Institute for International Economics.

“Central bankers should never say never, but the data suggests that inflation isn’t accelerating, and I believe that further increases in the policy rate are probably unnecessary.”

Fed Chair Jerome Powell, in his press briefing after the Fed held rates steady earlier this month, also ruled out rate hikes.

“What that does is it takes out the tail-risk scenario that the Fed is still thinking about hikes because they are effectively questioning their assumption that rates are restrictive enough,” said Vishal Khanduha, co-head of Broad Markets Fixed Income at Morgan Stanley Investment Management.

“Chairman Powell and other members of the Fed have done a good job of clarifying rate hikes very clearly. That in our mind is more of a market-moving news versus cuts being priced in.”

In late morning trading, the dollar was down 0.1% against the yen at 156.065 yen. This currency pair typically tracks interest rate move expectations: pricing in cuts instead of hikes weighs in the dollar as it reduces the yield on U.S. debt assets such as Treasuries.

However, fears of intervention from Japanese authorities have deterred traders from pushing the yen to new lows. The yen dropped to more than 160 per dollar on April 29, its weakest in 34 years.

CRYPTOCURRENCY GAINS

Atlanta Fed chair Raphael Bostic also spoke today and warned against cutting rates too quickly. The Fed, he said, needs to be cautious about approving its first rate cut to be sure it does not touch off pent-up spending among businesses and households, and put the central bank in a position where inflation starts “bouncing around.”

Several officials on Monday also called for continued policy caution, even after data last week showed an easing in consumer price pressures in April.

“Fed speakers are driving the market – and they, so far, haven’t said anything traders didn’t expect, keeping the U.S. dollar flat,” said Helen Given, FX trader, at Monex USA in Washington.

“Barring a surprise from the FOMC (Federal Open Market Committee) minutes tomorrow afternoon, it’s likely that this could stay a fairly quiet week.”

The dollar index was little changed at 104.56.

The euro was also flat at $1.0861.

U.S. rate future priced in today about 43 basis points (bps) of Fed rate cuts in 2024 — implying one 25 bps reduction and a more than 70% chance of a second move by December, according to LSEG’s rate probability app.

In the euro zone, futures are betting on 63 bps of ECB rate cuts in 2024 from around 73 bps in mid-May.

Investors are also awaiting Thursday’s data from the European Central Bank negotiated wage tracker and the euro zone Purchasing Managers’ Index which could provide further clues about the monetary cycle in the euro area.

In cryptocurrencies, ether was set for its largest two-day gain in nearly two years and bitcoin approached a record high on speculation about the outcome of applications for U.S. spot exchange-traded funds that would track the world’s second-biggest cryptocurrency.

Ether jumped 7.8%% to $3.773 after hitting $3,833.70, its highest level since mid March. It surged nearly 14% in the previous session – its largest daily percentage gain since November 2022.

Bitcoin broke above the $70,000 level and was last trading 1% higher at $70,241. It hit its all-time high at $73,803.25 in March.

On the data front, the focus will now be on the Personal Consumption Expenditures (PCE) price index report – the Fed’s preferred gauge of inflation – due on May 31.

Against the Canadian dollar, the U.S. currency was up 0.1% at C$1.3643 . Data showed Canada’s annual inflation rate slowed to a three-year low of 2.7% in April, matching estimates, and core measures continued to ease. The numbers raised bets for a cut in June by the Bank of Canada.

Additional reporting by Rae Wee in Singapore.