Written by Chuck Mikolajczak
NEW YORK (Reuters) – The dollar fell on Friday after a U.S. inflation reading indicated continued easing of price pressures, while the yen rose against the greenback after Shigeru Ishiba, seen as an interest rate hawk, became Japan’s prime minister. Next. .
The U.S. personal consumption expenditures price index rose 0.1% in August, matching expectations of economists polled by Reuters, after an unrevised 0.2% increase in July. In the 12 months through August, the PCE price index rose 2.2% after rising 2.5% in July.
In addition, consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.2% last month after an unrevised 0.5% increase in July. The data was slightly lower than the estimate of 0.3% but indicated that the economy still maintained some momentum in the third quarter.
The Fed recently signaled a shift in focus away from inflation and toward maintaining labor market health, but it delivered a larger-than-usual 50 basis point rate cut last week.
“Powell can breathe a little sigh of relief,” said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.
“After pushing for a 50 basis point cut rather than the traditional 25 basis point cut to personal income, the spending data so far vindicates this decision.”
The index, which measures the greenback against a basket of currencies, including the yen and the euro, fell 0.17% to 100.43 after falling to 100.15, its lowest level since July 20, 2023, with the euro falling 0.14% to $1,116.
The dollar fell about 0.2% during the week, continuing its fourth weekly decline in a row and the ninth in the last 10 weeks. The euro fell slightly during the week.
Markets are fully pricing in a cut of at least 25 basis points at the Fed’s November meeting, with expectations for another big 50 basis point cut now reaching 56.7% after the data, according to CME’s FedWatch tool, from 49.9% before the release.
The yen strengthened after Japanese Ishiba narrowly won the leadership contest for the country’s ruling Liberal Democratic Party.
Ishiba, a former defense minister, is a critic of previous monetary stimulus and told Reuters the central bank was “on the right policy track” with interest rate hikes so far.
Markets were largely anticipating a win for hardline nationalist Sanae Takaishi, a staunch opponent of further interest rate hikes, pricing in loose monetary and fiscal policies and a weaker yen over the past week.
The Japanese yen rose 1.88 percent to 142.12 per dollar after rising to 142.09, on its way to achieving the largest daily percentage gain since August 2. Over the course of the week, the dollar fell 1.25 percent against the yen, preparing to record its third gain. Weekly decline of four.
The euro fell 1.95% to 158.67 against the Japanese currency.
European data showed that inflation in France and Spain rose less than expected, boosting expectations for an October interest rate cut from the European Central Bank to more than 90%.
Meanwhile, China launched another round of stimulus measures on Friday, with the country’s central bank cutting interest rates and pumping liquidity into the banking system as it tries to bring economic growth back toward this year’s target of about 5%.
The dollar strengthened 0.11% to 6.979 against external transactions.
The pound sterling fell 0.3% to $1.3375, and increased approximately more than 0.4% over the course of the week, heading for its second weekly rise in a row.