Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) – The U.S. dollar fell on Friday after data showed inflation in the world’s largest economy fell last month, reinforcing expectations that the Federal Reserve will begin cutting interest rates this year.
The dollar initially fell against the yen, the currency pair most sensitive to U.S. economic data because of its high, positive correlation with Treasury yields. However, the dollar strengthened and was flat during the day, with investors continuing to focus on the wide interest rate differential between the United States and Japan.
The dollar recently rose slightly against the Japanese unit, reaching 160.815 yen, after previously hitting a 38-year high of 161.27 yen. Traders remained on high alert for Japanese authorities to intervene to strengthen their currency.
The US currency posted monthly and quarterly gains against the yen of around 1.9% and 5.9%, respectively.
The data showed that the U.S. Personal Consumer Expenditures (PCE) price index, the Fed’s preferred measure of inflation, was unchanged last month before rising an unadjusted 0.3% in April. In the 12 months through May, the PCE price index rose 2.6% after rising 2.7% in April.
“The PCE report was mostly in line with expectations, confirming the disinflationary trend as shown by the CPI (Consumer Price Index) and PPI (Producer Price Index) earlier this month,” said Boris Kovacevic, global macro strategist at Convera in Vienna, Austria . “Macroeconomic data continues to point to a weakening U.S. economy.”
Following the inflation data, federal funds futures slightly increased the odds of monetary policy easing in September to about 67% from about 65% slow Thursday, according to LSEG calculations. The market is also pricing in one to two rate cuts of 25 basis points this year.
A separate report released Thursday showed business activity in the Midwest performed better than expected, helping the dollar modestly. Chicago’s Purchasing Managers’ Index (PMI) rose to 47.4 from 35 in May, better than the 40 that economists had predicted.
Meanwhile, consumer sentiment at the University of Michigan showed a better-than-expected level of 68.2 for June, which also supported the dollar. Moreover, sentiment survey respondents expect short- and long-term inflation expectations to stabilize at 3%.
Investors will now focus on next week’s U.S. nonfarm payroll report, where Wall Street economists are forecasting a gain of 195,000 in June compared with 272,000 in May.
“Next week’s employment report will give us a window into whether the labor market is slowing,” said David Donabedian, chief investment officer at CIBC Private Wealth, in an emailed comment.
“This number will need to be a big surprise on the bearish side to suggest the Fed will take action in July to lower interest rates. We expect the Fed to remain unchanged unless the labor market begins to falter.”
In other currencies, the euro rose by 0.1% to USD 1.0709.
The euro, which lost 1.3% against the dollar in June, was on track for its biggest monthly decline since January as political uncertainty weighed on the run-up to French general elections.
In the second quarter, the common European currency weakened by 0.7%.
Investors fear that the up-to-date French government may raise fiscal spending, threatening the sustainability of the country’s public debt and the bloc’s financial stability.
The dollar exchange rate against the Swiss franc remained at 0.8986 francs.
In addition to economic data, market participants also paid attention to American politics.
US Republican presidential candidate Donald Trump unleashed a series of sometimes false attacks on President Joe Biden during their first election debate in Atlanta, and the dollar rose as Biden stuttered several times during his opening remarks.
The debate increased the chances of a Trump presidency and the imposition of import tariffs. Traders have been buying dollars as the Trump administration suggests more aggressive tariffs that could be inflationary and could result in higher interest rates.
Currency
offer
prices in
June 28
04:28
in the afternoon GMT
Description RIC Last percent USA YTD percent highest lowest
in Close Change offer Offer
Previous
Session
Dollar 105.79 105.89 -0.08% 4.36% 106.13 105.
index 78
Euro/Dollar 1.072 1.0704 0.15% -2.88% 1.0722 $1.0
685
Dollar/Ye 160.84 160.81 0.02% 14.03% 161.27 160.
No. 305
Euro/Yen 1.072 172.06 0.22% 10.79% 172.44 171.
46
Dollar/Sw 0.8985 0.8988 -0.03% 6.76% 0.901 0.89
edition 8
British Pound/ 1.2645 1.2639 0.06% -0.62% 1.267 $ 1.0
Dollar 685
Dollar/Ca 1.368 1.3701 -0.14% 3.21% 1.3734 1.36
Nadia 76
Australian/Up to 0.6674 0.6648 0.4% -2.11% 0.6685 USD 0.6
62
Euro/Switzerland 0.9629 0.9617 0.12% 3.69% 0.9639 0.96
s 1
Euro/Christmas 0.8474 0.8468 0.07% -2.24% 0.8481 0.84
linga 58
New Zealand 0.6095 0.6083 0.19% -3.55% 0.6101 0.60
Dollar/Up to 58
ll
Dollar/No 10.6637 10.6221 0.39% 5.22% 10.6948 10.6
road 116
Euro/Norway 11.4325 11.3732 0.52% 1.86% 11.4347 11.3
is 67 years aged
Dollar/Swedish currency 10.5942 10.6226 -0.27% 5.24% 10.6618 10.5
paradise 83
Euro/Sweden 11.3586 11.3755 -0.15% 2.1% 11.4033 11.3
in 364
