© Reuters. Japanese yen banknotes are seen in this illustration photo taken on September 23, 2022. REUTERS/Florence Low/Illustration
Written by Chuck Mikolajczak
NEW YORK (Reuters) – The decline eased on Friday after two straight days of gains, after economic data showed a slowdown in consumer spending, raising some doubts about the Federal Reserve’s potential aggressiveness in fighting inflation.
US Treasury yields were also mostly lower after the data.
The Commerce Department said consumer spending rose 0.1% in May while data for the previous month was revised to show spending accelerating by 0.6% versus the 0.8% previously reported. Personal consumption expenditures (PCE) rose 0.1% for the month after rising 0.4% in April while advancing 3.8% year-on-year, slowing from a revised 4.3% in the previous month.
But measures of personal consumption expenditures were still well above the federal inflation target of 2%.
“Spending has been soft, especially in terms of inflation rates. Spending on goods is down, and spending on services seems to be fading,” said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.
“Inflation is drifting down. However, the exit from the slope to 2% inflation is long.”
The dollar index fell 0.426% to 102.880 and was virtually unchanged for the week.
The index rose 0.82% over the previous two sessions after Federal Reserve Chairman Jerome Powell’s comments and strong economic data reinforced market expectations that the US central bank would raise interest rates twice more this year, while reducing the belief that rate cuts could happen. cards at the end of the year.
Expectations for a 25 basis point rise at the Fed’s July meeting have eased slightly, with markets now pricing in an 84.3% chance of a rally, down slightly from Thursday’s 89.3%, according to CME’s FedWatch tool.
Chicago Fed President Austan Goolsby said Fed officials will analyze “a lot of data” leading up to the next Fed meeting to assess whether borrowing costs need to be raised to curb inflation.
The dollar index rose 0.3% over the quarter, poised to snap a series of consecutive quarterly declines. In the first half, the dollar fell 0.6%.
The Japanese yen rose 0.35% and was on course to pounce on three days of weakness against the dollar at 144.26 per dollar, after briefly surpassing the 145 mark with a fresh seven-month high of 145.07.
Investors have been watching to see if the Bank of Japan (BOJ) will intervene in the currency again, which happened recently at around the 145 mark, as the US and Japan’s central bank policy plans are likely to remain in opposition to each other.
The dollar is up nearly 9% this quarter against the yen, which will be its strongest level in a year.
Japanese Finance Minister Shunichi Suzuki warned on Friday that the country will take appropriate steps if the yen continues to weaken, and warned investors not to sell the yen too far, echoing similar comments from other ministers and government officials this week.
Previous data showed that core inflation in Tokyo rose in June and stayed above the Bank of Japan’s 2% target for the 13th month, keeping pressure on bank policymakers to reduce their ultra-easy monetary policy.
On the other hand, inflation data in the eurozone declined for the third month in a row, but it showed a slight decline in core inflation and is unlikely to prevent the European Central Bank from raising interest rates at its meeting in July.
The euro rose 0.43% to $1.0911 while the British pound was last trading at $1.2695, up 0.66% on the day.
The data showed that the British economy grew by just 0.1% in the first quarter, as inflation sapped household disposable income.