US dollar marginally up

31 May 2024 , 08:57 AM

As investors readied themselves for inflation data, the dollar was recouping some of the losses versus peer currencies on Friday following a weaker adjustment to the U.S. GDP for the first quarter that showed potential for rate reduction this year.

Following downward revisions to consumer spending, the advance estimate of 1.6% was revised down to 1.3% annualised growth for the U.S. economy from January through March, according to official statistics released yesterday.

John Williams, the president of the New York Fed, stated on Thursday that he believes there is sufficient proof that monetary policy is assisting in reducing inflation.

U.S. Treasury yields fell on the updated GDP figures, which caused the greenback to hit its highest level since May 14 at 105.17 on Thursday as it marched to multi-week peaks.

The dollar index, which compares the value of the currency to six important rivals, lastly stabilised at 104.76, having fallen as low as 104.63 the previous night.

Williams’ remarks and the data adjustments have reignited expectations for a cut sooner rather than later.

According to the CME Group’s FedWatch Tool, markets are now pricing in a 55% possibility of rate cuts to start in September, up from 51% a day earlier.

With the Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, set to be released later this year, the market was now bracing itself for potential clues about the central bank’s potential course of interest rate cuts.

Softer U.S. consumer price inflation data from earlier in May renewed expectations for rate cuts this year, which depreciated the value of the dollar generally and put it on course to record its first monthly losses in 2024.

However, with indications of persistent inflation, including a surprising improvement in consumer confidence in data released on Tuesday, hopes for interest rate reductions this year have faltered.

The Tokyo core consumer prices, a leading predictor of national data, increased from the previous month, according to data, but the yen barely moved against the dollar, supporting market predictions that the central bank will hike interest rates this year.

Following a slight decline, the value of the Japanese yen held onto 156.77 per US dollar, not far from its four-week low of 157.715 per dollar on Wednesday.

The yen has been gradually approaching the 34-year low of 160.245 from a month ago, which market participants believe prompted Tokyo to intervene twice with dollar sales.

The euro touched a two-week low of $1.07885 overnight and was unchanged at $1.083225 elsewhere.

The euro zone is scheduled to release price statistics on Friday, which comes after Germany reported higher-than-expected April inflation on Wednesday.

After touching $1.2801 on Tuesday for the first time since March 21, sterling remained steady at $1.2734.

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