Dollar falls lower than PCE data; Eurozone inflation expectations lowered By

4 Min Read – The US dollar fell on Friday ahead of the release of key US inflation data, which could boost sentiment ahead of the Federal Reserve meeting next week.

At 04:55 ET (08:55 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.1% lower at 105.395, after rising to 106.00 on Thursday.

Dollar awaits PCE data

Data released Thursday showed the U.S. grew at an annual rate of 1.6% in the January-March period, much slower than the expected 2.4%.

That said, the report also showed that underlying inflation, as measured by the main price index for personal consumption expenditure, rose 3.7% in the first quarter, meeting expectations for a 3.4% increase exceeded.

Fed officials have made it quite clear in recent weeks that they remained concerned about inflation, prompting the market to rein in expectations of an early rate cut.

Attention now turns to the release later in the session of March data, widely seen as the Fed’s main inflation gauge.

“The main drivers of exchange rates all point to a stronger dollar: higher government bond yields, widening swap differentials in favor of the dollar and falling equity prices,” ING analysts said in a note.

“There is a good chance that markets will further scale back US rate cuts if core PCE reaches 0.4% month-on-month today.”

Eurozone consumers curb inflation expectations

In Europe, yields rose 0.2% to 1.0746, benefiting from the weaker tone of the dollar.

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According to the ECB’s Consumer Expectations Survey, eurozone consumers saw inflation of 3.0% over the next 12 months, just below the 3.1% expected a month earlier.

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This was the lowest level since December 2021.

However, inflation expectations for the next three years remained stable for the fourth month in a row at 2.5%, above the European Central Bank’s 2.0% target.

The ECB plans to cut rates in June, but the outlook remains further clouded by rising energy costs, persistently high services inflation and persistent geopolitical tensions.

rose 0.2% to 1.2532, benefiting from recent dollar weakness.

“The BoE policy meeting on May 9 is clearly the next big event for the pound, but data could still prove more important given a divided MPC,” ING said.

USD/JPY hits new 34-year high

In Asia, yields rose 0.6% to 156.58, rising past the 156 level to new 34-year highs, after yields remained unchanged following a historic rise in March.

The central bank also predicts higher inflation in the coming years, but also weaker economic growth, casting doubt on its ability to keep raising rates.

Softer-than-expected inflation data from Tokyo, released earlier on Friday, further raised doubts about an aggressive BOJ.

rose 0.1% to 7.2466, remaining close to a five-month high.

rose 0.5% to 0.6552, supported by strong Australian inflation data, which, combined with the higher CPI reading earlier this week, prompted bets on higher interest rates in the country.

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