Investing.com – The US dollar was steady in European trade on Thursday, after falling to multi-week lows overnight in the wake of a more moderate US inflation report, which put the focus back on Federal Reserve interest rate cuts.
At 04:25 EDT (08:25 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was up 0.1% at 104.285, after falling to a five-week low just below From 104 overnight.
Dollar declines after key inflation data
The dollar remains on the defensive after recent US inflation data sparked expectations that interest rates will be cut twice this year, likely starting in September.
Wednesday rose 0.3% in April, less than the expected 0.4% gain, which came as a relief to markets after sticky consumer prices in the first quarter sharply scaled back rate-cut bets and even raised some fears of an additional hike.
The data also sent US Treasury yields falling to their lowest levels in six weeks, as traders reassessed the likely path of the Federal Reserve's monetary policy.
“Markets have given more weight to encouraging news coming from two days of inflation numbers, causing the dollar to almost completely erase gains after CPI disappointment in mid-April,” analysts at ING said in a note.
A number of Fed spokesmen are scheduled to deliver their opinions later in the session, but investors will likely need concrete evidence if rate cut expectations are to change radically from now.
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“Our preferred call at this point is not a continued decline in the dollar until the end of May, but rather a period of quiet trading with little sense of direction and low volatility. “This is mainly because hard data is needed to significantly move the needle on Fed pricing,” ING added. “The next major release – Core Personal Consumption Expenditures – will be released only on May 31.”
The euro is falling from its previous highs
In Europe, trading fell 0.1% to 1.0867, with the euro falling slightly on Thursday after earlier rising to its highest levels since March 21.
The Fed is widely expected to start cutting interest rates from a record high in June, and markets are now seeing up to three rate cuts this year, or two after June, most likely in September. And December.
“The 1.0900 level should not represent too strong resistance if US data – for example, today's jobless claims – further pressure the dollar. However, a move to record 1.1000 levels seems premature given the inflation picture that remains flat in the US.” United.
It fell 0.1% to 1.2675, with the pound giving up some of the previous session's gains when it rose above 1.27 for the first time since April 10.
The Fed is also expected to cut interest rates from a 16-year high this summer, but stronger-than-expected recent GDP growth may delay that until after the ECB's move.
Yen posts slight gains after weak GDP data
In Asia, it fell 0.2% to 154.64, with the yen benefiting from a weaker dollar, but the pair remained well above levels recorded earlier in May, when the government was seen intervening in currency markets.
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The yen's recovery stalled after data showed Japan's economy contracted much more than expected in the first quarter, raising doubts about how much progress the Bank of Japan has to continue raising interest rates.
It traded largely flat at 7.2187, as sentiment towards China remains weak after Washington imposed tougher trade tariffs on key industries in China, such as electric cars, pharmaceuticals and solar technology.