By Gertrude Chavez Dreyfus
NEW YORK (Reuters) – The U.S. dollar rose on Friday after data showed a key measure of inflation came in in line with expectations, while personal spending and income increased, supporting expectations that the Federal Reserve will likely cut interest rates by a smaller 25 basis points next month instead of 50 basis points.
Some market participants had been expecting a bigger cut next month on the grounds that the Fed was behind the curve in terms of easing and needed to catch up.
U.S. interest rate futures on Friday indicated a 31% chance of a 50 basis point rate cut next month, down from 35% on Thursday, as the market fully priced in the first easing by the Federal Reserve in more than four years, London Stock Exchange calculations showed.
Markets have also priced in cuts of around 100 basis points by the end of 2024.
The dollar rose 0.8% to 146.09 yen after the inflation data, its biggest daily gain in two weeks. The dollar has risen 1.2% for the week, on track for its biggest weekly gain since mid-June.
But the dollar remained down 2.6% in August, extending its decline for a second straight month against the Japanese currency.
Data on Friday showed the personal consumption expenditures price index rose 0.2% last month, in line with expectations, after an unrevised 0.1% gain in June. In the 12 months through July, the PCE price index rose 2.5%, matching June’s gain.
Consumer spending also rose 0.5% last month after expanding 0.3% in June.
“We’re clearly going to get a rate cut, and I think whether it’s 25 or 50 is still up for debate and it all depends on next week’s employment data,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.
“I expect three rate cuts, and I see a half-percentage point cut in September, depending on employment data. If not, it will be 25 basis points in September and then 50 basis points in December.”
The dollar index, which measures the greenback against six major currencies, rose to a 10-day high after the inflation data, and was up 0.3% at 101.7. For the week, the index is up 1%, on track for its best weekly performance since early April.
But the index fell 2.6% this month, its weakest level since November last year.
The dollar generally continued to benefit from end-of-month flows, after selling off after Federal Reserve Chairman Jerome Powell gave the clearest signal yet at last week’s Jackson Hole meeting that the U.S. central bank will 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, breaking a four-month slide. The survey showed U.S. consumers expect inflation to continue to slow in the coming year, with a gauge of price growth expectations released Friday at its lowest August level since late 2020.
The dollar briefly pared gains after the report.
Elsewhere, the euro fell 0.2% against the dollar to $1.1050. The euro has fallen 1.3% this week, on track for its biggest weekly loss since April.
However, the euro rose 2.1% in August, its best monthly performance since November 2023, as 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, closing down 0.4% after inflation in Germany slowed more than expected, boosting investors’ expectations for a European Central Bank interest rate cut.
China’s yuan rose to a 14-month high against the dollar, its biggest monthly jump since November, as corporate demand for the currency increased on growing expectations of a U.S. interest rate cut.
Sterling rose to 7.0825 against the dollar before last trading at 7.0920, on track to rise about 1.9% in August.
currency
tender
Prices in
30
August
08:02
Evening GMT
RIC Description Latest US Percentage So Far Highest and Lowest Percentage
When closing the bid change the bid
former
a class
Dollar 101.67 101.36 0.32% 0.30% 101.78 101.
Index 24
EUR/USD 1.1053 1.1077 -0.21% 0.14% $1.1095 $1.1
A 044
USD/JPY 146.16 144.96 0.89% 3.69% 146.25 144.
N 685
EUR/JPY 1.1053 160.6 0.6% 3.81% 161.62 160.
2
USD/CHF 0.85 0.8473 0.33% 1% 0.851 0.84
Issue 68
GBP/USD 1.3131 1.317 -0.27% 3.21% $1.32 $1.1
Dollar 044
USD/CAD 1.3478 1.3485 -0.03% 1.69% 1.3509 1.34
66 clubs
AUD/USD 0.6766 0.6798 -0.44% -0.73% $0.6817 $0.6
752
EUR/CHF 0.9394 0.9385 0.1% 1.16% 0.9417 0.93
Q81
EUR/USD 0.8417 0.8411 0.07% -2.9% 0.8428 0.84
Ling 01
New Zealand 0.625 0.6257 -0.13% -1.11% 0.6275 0.62
Dollar/Dollar 31
Lebanese pound
USD/USD 10.6028 10.4989 0.99% 4.61% 10.6409 10.4
Route 767
EUR/NOK 11.7197 11.6308 0.76% 4.42% 11.7565 11.6
He is 137
USD/CHF 10.2664 10.2239 0.42% 1.98% 10.2936 10.2
Aden 09
EUR/SED 11.348 11.3231 0.22% 2.01% 11.382 11.3
At 17