Investing.com – The U.S. dollar rose in European trade on Friday, but was on track for a big weekly decline after slowing inflation and weak retail sales led to a renewed focus on Federal Reserve interest rate cuts.
At 04:10 EDT (08:10 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was up 0.2% at 104.580, marginally above its lowest level in five weeks. Slightly lower than the 104 seen earlier this week.
Dollar stabilizes after hawkish Fed speech
The dollar has recovered somewhat, with several Fed officials, specifically members of the bank's rate-setting committee, saying they need more confidence that inflation is falling, beyond some of the decline in inflation in April.
“I now believe it will take longer to reach our 2% target than I previously thought,” Loretta Mester, president of the St. Louis Federal Reserve, said Thursday, adding that more monitoring of incoming data will be needed.
New York Federal Reserve Bank President John Williams agrees.
“I don't see any indicators right now that tell me…there's a reason to change the monetary policy stance now, and I don't expect that, I don't expect to get that greater confidence that we need to see in the future.” Inflation is progressing toward the 2% target in the very near term, Williams said.
However, the dollar is still on track for a weekly loss of about 0.7% after lower-than-expected US data raised expectations for two interest rate cuts this year, possibly starting in September.
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The US was also flat in April and weaker than expected, and manufacturing output unexpectedly fell.
“Our near-term view remains that we could see further stability in US dollar pairs as markets await the next key data input: April core personal consumption expenditures on May 31,” analysts at ING said in a note.
The euro falls before the release of the consumer price index
In Europe, trading fell 0.1% to 1.0860, after reaching 1.0895 following the release of US inflation data, but the single currency is still up about 0.9% against the dollar this week.
The final reading is due later in the session and is expected to show inflation rising by 2.4% year-on-year in April.
The central bank is widely expected to cut interest rates in June, but traders remain unsure how many, if any, additional cuts the central bank will approve over the rest of the year.
Traders have priced in ECB cuts of 70 basis points this year – far more than the easing of just under 50 basis points set by the Fed.
The index fell 0.1% to 1.2658, but is still on track to achieve gains of about 1% this week.
The Bank of England is also expected to cut interest rates from a 16-year high this summer, but volatility is likely to be limited before key UK inflation figures are released next week.
Yen declines after weak Japanese GDP data
In Asia, it rose 0.3% to 155.87, approaching a break above 156, after weaker-than-expected Japanese data for the first quarter.
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It traded 0.1% higher at 7.2209, returning to six-month highs above 7.22 after data earlier on Friday showed more-than-expected growth in April, but growth slowed sharply, while the decline in Chinese house prices accelerated last month. .
