By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) – The U.S. dollar gained on Friday after data showed a key inflation gauge matched forecasts. At the same time, spending and personal income rose, supporting expectations that the Federal Reserve will likely cut interest rates by 25 basis points next month, rather than 50 basis points.

Some market participants had been expecting a bigger cut next month, on the assumption that the Federal Reserve has been lagging in easing and needs to catch up.

U.S. interest rate futures on Friday suggested a 31% chance of a 50-basis-point rate cut next month, down from a 35% chance on Thursday, according to LSEG calculations. The market had fully priced in the Fed’s first monetary easing in more than four years at its September meeting.

Markets have also factored in interest rate cuts of around 100 basis points by the end of 2024.

The dollar rose 0.8% to 146.09 yen on the inflation data, its biggest daily gain in two weeks. It was up 1.2% for the week, on track for its biggest weekly gain since mid-June.

However, the U.S. dollar fell 2.6% in August, depreciating against the Japanese currency for the second month in a row.

Friday’s data showed the personal consumption expenditures (PCE) price index rose 0.2% last month, in line with expectations, after an unadjusted 0.1% boost in June. In the 12 months through July, the PCE price index rose 2.5%, matching June’s gain.

Consumer spending rose 0.5% last month after rising 0.3% in June.

“Of course we’ll cut rates, but I think whether it’s 25% or 50% is still a moot point and it all depends on next week’s jobs data,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

“I see three rate cuts and I see the possibility of half a percent in September, depending on the employment data. If not, it will be a 25 basis point cut in September and then a 50 basis point cut in December.”

The index’s gauge of the six major indexes rose to a 10-day high after the inflation data was released, rising 0.3% to 101.7. It was up 1% on the week, its best weekly performance since early April.

However, the index fell 2.6% this month, which is the lowest result since November last year.

The dollar as a whole continued to benefit from flows delayed in the month, having been sold after Federal Reserve Chairman Jerome Powell gave the clearest signal yet at a meeting in Jackson Hole last week that the U.S. central bank would cut interest rates at its September meeting.

Separate economic reports showed the University of Michigan’s monthly consumer sentiment index rose to 67.9 in August from an eight-month low of 66.4 in July, snapping a four-month decline. U.S. consumers expect inflation to continue to moderate next year, the survey showed, and an index of price growth expectations released Friday hit its lowest level in August since delayed 2020.

Following the report’s release, the dollar temporarily depreciated.

Elsewhere, the euro fell 0.2% against the dollar to $1.1050. The euro has lost 1.3% this week, on track for its biggest weekly loss since April.

The euro, however, rose 2.1% in August, its best monthly performance since November 2023, and the European Central Bank remains on track to cut interest rates again next month.

The single currency fell to its lowest level in more than a week on Thursday and closed down 0.4% after inflation in Germany fell more than expected, boosting investor expectations of an ECB interest rate cut.

The Chinese yuan rose to a 14-month high against the dollar, posting its biggest monthly gain since November, on rising corporate demand for the currency and rising expectations of U.S. interest rate cuts.

The rate strengthened to 7.0825 per dollar before finally changing hands at 7.0920, up about 1.9% in August.

Currency

offer

prices in

30

August

08:02

afternoon GMT

RIC Description Last Percent USA YTD Percent Highest Lowest

in Close Change offer Offer

Previous

Session

Dollar 101.67 101.36 0.32% 0.30% 101.78 101.

index 24

Euro/Dollar 1.1053 1.1077 -0.21% 0.14% 1.1095 USD 1.1

044

Dollar/Ye 146.16 144.96 0.89% 3.69% 146.25 144.

No. 685

Euro/Yen 1.1053​ 160.6 0.6% 3.81% 161.62 160.

2

Dollar/Shv 0.85 0.8473 0.33% 1% 0.851 0.84

Edition 68

Pound sterling/ 1.3131 1.317 -0.27% 3.21% USD 1.32 USD 1.1

Dollar 044​

Dollar/Ca 1.3478 1.3485 -0.03% 1.69% 1.3509 1.34

Nadia 66

Australian/Up to 0.6766 0.6798 -0.44% -0.73% 0.6817 USD 0.6

752

Euro/Switzerland 0.9394 0.9385 0.1% 1.16% 0.9417 0.93

article 81

Euro/Star 0.8417 0.8411 0.07% -2.9% 0.8428 0.84

linga 01

New Zealand 0.625 0.6257 -0.13% -1.11% 0.6275 0.62

Dollar/Until 31

ll

Dollar/No 10.6028​ 10.4989 0.99% 4.61% 10.6409 10.4

road no. 767

Euro/Norway 11.7197 11.6308 0.76% 4.42% 11.7565 11.6

there are 137

Dollar/Swedish currency 10.2664 10.2239 0.42% 1.98% 10.2936 10.2

paradise 09

Euro/Sweden 11.348 11.3231 0.22% 2.01% 11.382 11.3

at 17