THE US dollar found a footing on Thursday (May 16) after falling sharply on Wednesday on the back of data showing a slowdown in US inflation, while Japan’s yen inched higher after jumping the previous day.
US inflation slowed to 0.3 per cent in April from a month earlier, down from 0.4 per cent in March and below expectations for another 0.4 per cent reading, Wednesday’s data showed.
Year-on-year core inflation – which strips out volatile food and energy prices – fell to its lowest in three years at 3.6 per cent. Meanwhile, retail sales were flat, suggesting conditions for Federal Reserve interest rate cuts are falling into place.
The dollar index, which tracks the currency against six major peers, was last up 0.22 per cent at 104.43 on Thursday after falling 0.75 per cent on Wednesday as investors raised their bets on Fed rate cuts, now envisaging two reductions by the end of the year.
Some analysts said Fed officials will want to see proof of inflation’s downward path before countenancing cuts, a point made by Minneapolis Fed president Neel Kashkari on Wednesday.
Francesco Pesole, FX strategist at ING, said: “In practice there isn’t all that much to be all that optimistic about. Inflation is moving in the right direction, but still not at levels that would allow the Fed to cut rates.”
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Pesole said investors were now waiting for US personal consumption expenditures inflation data in late May. “My view at this stage is that we could just default to another couple of weeks of low volatility, lack of direction and range-bound trading.”
The dollar dropped 1 per cent against the yen on Wednesday after the data and was down a further 0.11 per cent on Thursday at 154.74, having fallen as low as 153.6 before weak Japanese growth figures dented the yen.
The Japanese currency has fallen around 9.5 per cent this year, as the Bank of Japan has kept monetary policy loose while higher Fed interest rates have drawn money towards US bonds and the dollar. The yen has been particularly sensitive to any widening or closing of the interest rate differential.
The euro hit a two-month high at US$1.0895 on Thursday before dipping to trade 0.1 per cent lower at US$1.0871. Britain’s pound reached a one-month top of US$1.2675 before falling back slightly.
The Australian dollar, which surged 1 per cent on Wednesday, hit a four-month high at US$0.6714 but then paused after an unexpected rise in Australian unemployment. It was last at US$0.6676, as traders priced out any risk of a further rate hike in Australia.
Bitcoin touched a three-week high of US$66,695 before dipping slightly. REUTERS
