Hannah Lang
NEW YORK (Reuters) – The dollar fell on Friday and was on track for its first monthly decline in 2024 after data showed U.S. inflation rose as expected in April, providing no clarity on how quickly The US Federal Reserve will be able to reduce interest rates.
The personal consumption expenditures (PCE) price index rose 0.3% last month, the Commerce Department’s Bureau of Economic Analysis said Friday, matching an unverified gain in March.
“These numbers don’t give any sense that the Fed is achieving its goal,” said Joseph Trevisani, senior analyst at FX Street. “It has already been determined what its purpose is, so markets are willing to give it some time… but I don’t think that time is indefinite.”
The last price was down 0.12% at 104.64.
Since March 2022, the Fed has raised borrowing costs by 525 basis points in an attempt to frigid demand across the economy. Financial markets initially expected the first rate cut to take place in March, but it was postponed to June and now to September.
Official data showed Thursday that the U.S. economy grew 1.3% year-over-year from January to March, compared with the previous estimate of 1.6% after a downward revision in consumer spending.
While inflation is “heading in the right direction,” said Kyle Chapman, a currency analyst at Ballinger Group, “policymakers are certainly not out of the woods yet.”
“I would caution against over-interpreting data for a single month,” he said.
INFLATION IN THE EURO AREA
The euro strengthened after data showed price pressures in the euro zone accelerated faster than expected in May, complicating the European Central Bank’s outlook.
The euro rose 0.13% to $1.0847. Inflation data in France published earlier on Friday and data from Germany and Spain from the beginning of the week were slightly higher than expected.
The numbers did not change the market view that the ECB will cut interest rates at its meeting next week.
According to all 82 economists polled by Reuters, an ECB interest rate cut on June 6 seems certain, with most predicting further cuts in September and December.
Elsewhere, the yen weakened, leaving the dollar up 0.24% at 157.210, but off its four-week high this week, after Japan’s finance minister renewed warnings about the currency’s excessive volatility.
Japan’s Ministry of Finance released data on Friday confirming that Japanese authorities spent 9.79 trillion yen ($62.2 billion) on currency market interventions last month to support the yen, which kept the currency from testing recent lows but is unlikely to that the longer decline will reverse.
“The intervention disclosed by the Ministry of Finance between April 26 and (Thursday) was slightly larger than market estimates based on Bank of Japan accounts, but is not large enough to raise fears of a war treasury so weakened as to limit further action,” he said in note by Karl Schamotta, chief market strategist at Corpay.
Friday’s data showed that underlying consumer inflation in Tokyo accelerated in May, but price increases excluding the impact of fuels moderated, increasing uncertainty over the timing of the Bank of Japan’s next interest rate hike.
