SINGAPORE, Feb 16 (Reuters) - The dollar firmed on Friday, on track for its fifth straight weekly gain, as investors assessed the latest economic data and firm expectations of the Federal Reserve cutting rates in June, while the yen was anchored around the key 150 per dollar level.
The dollar index, which measures the U.S. currency against six major rivals, was up 0.13% at 104.40 on Friday, having eased 0.4% on Thursday. The index is on course to eke out a 0.3% gain for the week, its fifth in a row.
The dollar slipped on Thursday after mixed U.S. data, with retail sales falling more than expected in January, while a separate report underscored labour market tightness.
"We have seen how U.S. activity is starting to show some softening and the USD momentum is taking a breather," said Christopher Wong, a currency strategist at OCBC in Singapore.
"A softer read on PPI today should see USD ease. But overall market expectations on the timing of the first Fed cut and magnitude of the cut will continue to drive volatility in FX markets."
A string of strong U.S. data has quashed any lingering expectations of early and deep rate cuts from the Fed, with traders now pricing in an 80% chance of a rate cut in June, according to the CME FedWatch tool.
Markets had initially priced in March as the starting point of the Fed's easing cycle.
Traders now expect 94 basis points (bps) of cuts this year, nearer to Fed's own projection of 75 bps of easing and drastically lower than the 160 bps of cuts priced in at the end of 2023.
Federal Reserve Bank of Atlanta President Raphael Bostic said on Thursday that while the U.S. central bank had made a lot of progress lowering inflation pressures, ongoing risks mean that he was not yet ready to call for interest rate cuts.
YEN WORRIES
The Japanese yen weakened 0.22% to 150.26 per dollar, hovering around the 150 mark, a level that puts the market on alert for possible intervention by Japan to weaken its currency as well as jawboning from officials.
In a fresh warning, Finance Minister Shunichi Suzuki said that while a weak yen has merits and demerits, he was "more concerned" about the negative aspects of a weak currency.
"Diminishing effectiveness of verbal interventions may require Japanese officials to take concrete action to slow down the pace of yen depreciation if U.S. Treasury yields rise further", said Kieran Williams, head of Asia FX at InTouch Capital Markets.
The yen, which is highly sensitive to U.S. rates, is down 6% against the dollar this year as investors pare back their expectations of rate cuts from the Fed.
Japan unexpectedly slipped into a recession at the end of last year, losing its title as the world's third-biggest economy to Germany and raising doubts about when the central bank would begin to exit its decade-long ultra-loose monetary policy.
However, sources familiar with the Bank of Japan's thinking told Reuters it is still on track to end negative interest rates in coming months, though weak domestic demand means it may seek more clues on wage growth before acting.
BOJ Governor Kazuo Ueda said on Friday the central bank will examine whether to maintain its various monetary easing measures, including negative interest rates, when sustained achievement of its inflation target comes into sight.
Meanwhile, the euro was down 0.11% to $1.0761, set for a small decline in the week and not far from the three month low of $1.0695 it touched earlier this week.
Sterling last bought $1.2582, down 0.15% on the day, on course for a 0.4% decline for the week ahead of UK retail sales data for January, which is expected to dip 1.4% on year on year basis.
Data on Thursday showed the British economy fell into recession at the end of 2023, further emboldening wagers on rate cuts from the Bank of England this year.
Markets now anticipate 73 bps of cuts this year from the BOE vs 60 bps at the start of the week.
The Australian dollar eased 0.08% to $0.65195, while the New Zealand dollar is down 0.16% to $0.60965.
(Reporting by Ankur Banerjee in Singapore; Editing by Himani Sarkar and Kim Coghill)
