Written by Hannah Lange
NEW YORK (Reuters) – The dollar fell on Friday and was headed for its first monthly decline in 2024 after data showed U.S. inflation rose in line with expectations in April, which did not clarify much about the extent to which the U.S. Federal Reserve could cut interest rates. interest rates.
The Commerce Department's Bureau of Economic Analysis said Friday that the personal consumption expenditures price index rose 0.3% last month, matching March's unrevised gain.
“These numbers don't give any sense that the Fed is achieving its goal,” said Joseph Trevisani, chief analyst at FX Street. “Its target has already been set, so markets are willing to give it some time…but I don't think that time is unlimited.”
The latter fell by 0.12% to 104.64.
The Fed has raised borrowing costs by 525 basis points since March 2022 in an attempt to cool demand throughout the economy. Financial markets initially expected the first rate cut to take place in March, but it was then postponed to June and now to September.
The US economy grew at an annual rate of 1.3% in the January-March period, down from the previous estimate of 1.6% after downward revisions to consumer spending, official data showed on Thursday.
Although inflation is “moving in the right direction,” “policymakers are not out of the woods yet,” said Kyle Chapman, foreign exchange market analyst at Ballinger Group.
“I would caution against over-interpreting one month’s data,” he said.
Inflation in the euro area
The euro rose after data showed price pressures in the euro zone accelerated faster than expected in May, complicating expectations for the European Central Bank.
The euro rose 0.13 percent to $1.0847. French inflation data released earlier on Friday, and German and Spanish figures earlier this week, were slightly higher than expected.
These numbers did not change the view in the markets that the European Central Bank will cut interest rates when it meets next week.
According to all 82 economists polled by Reuters, an interest rate cut by the ECB on June 6 looks certain, with a majority expecting further cuts in September and December.
Elsewhere, the yen fell, sending the dollar up 0.24% to 157.210 but far from a four-week high this week, as Japan's finance minister reiterated his warnings about excessive volatility in the currency.
Japan's Finance Ministry released data on Friday confirming that Japanese authorities spent 9.79 trillion yen ($62.2 billion) intervening in the foreign exchange market to support the yen over the past month, in moves that prevented the currency from testing new lows but are unlikely to reverse a long-term decline. .
“The intervention revealed by the Finance Ministry between April 26 and (Thursday) was slightly larger than market estimates derived from the Bank of Japan’s calculations, but not large enough to raise concerns that the war chest is shrinking too much to prevent further action.” Carl Schamotta, chief market strategist at Corpay, said in a note:
Core consumer inflation accelerated in Tokyo in May, but price growth eased excluding the fuel impact, data on Friday showed, raising uncertainty about the timing of the Bank of Japan's next rate hike.
