The dollar was hesitant on Friday ahead of the publication of a highly anticipated inflation index in the United States, which could convince the Federal Reserve (Fed) to begin lowering its interest rates or, on the contrary, to wait. Around 09:25 GMT (11:25 in Paris), the greenback was slightly up against the single currency, which was down 0.06% at $1.0695, and remained almost stable against the British currency, which was down 0.01% at $1.2638.
The market is watching for the release of the PCE index for May, the Fed’s preferred gauge of inflation, which is expected to rise year-on-year to 2.6%, down from 2.7% in April, according to analyst consensus. “If US data suggests the slowdown in inflation is not fast enough”, “the market could moderate its expectations” a first rate cut from the Fed this year, which “would be positive for the dollar”comments Antje Praefcke, analyst at Commerzbank.
Higher rates mean higher yields for the US currency, making it more attractive to investors. On Tuesday, Fed Governor Michelle Bowman, quoted in the Financial Times, said she remained “willing to increase” borrowing costs again “if the progress in inflation were to stop or even reverse” in the United States, that is, if price increases stagnated or accelerated again.
Other U.S. data released Thursday was mixed. U.S. GDP growth in the first quarter of 2024, though revised slightly up to 1.4% annualized from 1.3% previously, confirmed the slowdown in activity from 3.4% in the final quarter of 2023. While weekly jobless claims in the U.S. were lower than expected, which could signal a robust labor market and fuel inflation, analysts said that was largely due to a public holiday.
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The Japanese currency held steady at 160.76 yen per dollar. Earlier in the session, the yen had hit a fresh low against the greenback since 1986, touching 161.27 yen. Currency traders appeared to “search for the limit” which will prompt action from Tokyo on the foreign exchange market to support its currency – some speaking of 165 yen to the dollar -, “the risk of intervention increasing” as the yen weakens, summarizes Ipek Ozkardeskaya, analyst at Swissquote Bank.
