TOKYO: The dollar was licking wounds against peer currencies on Friday after a downward revision to US GDP for the first quarter suggested room for rate cuts this year, while investors braced for inflation data.
Official data showed overnight that the US economy grew at an 1.3% annualised rate from January through March, down from the advance estimate of 1.6% after downward revisions to consumer spending.
Meanwhile, New York Fed President John Williams on Thursday said he feels there is ample evidence that monetary policy is helping to bring inflation down.
U.S Treasury yields, which had boosted the greenback to its highest since May 14 at 105.17 on Thursday as they marched to multi-week peaks, slipped on the revised GDP data.
The dollar index, which measures the currency against six major peers, last consolidated around 104.76 after dipping as low as 104.63 overnight.
The data revisions and comments by Williams have revived hopes for a cut sooner rather than later, with traders looking past higher PCE prices in the revised data to focus on lower consumption and growth, said Matt Simpson, senior market analyst at City Index.
Markets currently priced in a 55% chance of rate cuts to begin in September, up from 51% a day before, according to the CME Group’s FedWatch Tool.
The market now prepared for the release of the Fed’s preferred measure of inflation, the Personal Consumption Expenditures (PCE) price index, for further indications on how the central bank might proceed with interest rate cuts later this year.
Dollar drifts lower after revised data
Softer US consumer price inflation data earlier in May rekindled rate cut expectations for this year, weakening the dollar across the board and setting it on track to post its first monthly losses in 2024.
But expectations for interest rate reductions this year have wobbled amid signs of sticky inflation, most recently with a surprise uptick in consumer sentiment in data on Tuesday.
“It’s all down to today’s PCE inflation report now as to where markets head next… I still think there may be an upside surprise in the PCE report that could quickly reverse Thursday’s moves,” said City Index’s Simpson.
Against the dollar, the yen was little changed even after data showed Tokyo core consumer prices, a leading indicator of nationwide figures, accelerated from the previous month to keep alive market expectations the central bank will raise interest rates this year.
“May’s rebound in inflation in Tokyo largely reflects a jump in electricity inflation that has further to run, but underlying inflation will continue to moderate,” Marcel Thieliant, Head of Asia-Pacific at Capital Economics, wrote in a note.
“All told, the Tokyo CPI leaves us confident that nationwide underlying inflation will fall below 2% as soon as July.”
After weakening briefly, the Japanese currency held around 156.77 per greenback, remaining off Wednesday’s four-week low of 157.715 per dollar.
The yen has steadily marched closer toward the 34-year trough of 160.245 from a month ago, a level which market players suspect triggered two rounds of dollar-selling intervention by Tokyo. Elsewhere, the euro was flat at $1.083225 after touching a two-week low of $1.07885 overnight.
Price data for the euro zone is due on Friday, following a stronger-than-expected April inflation reading for Germany on Wednesday.
Sterling was unchanged at $1.2734 after reaching $1.2801 on Tuesday for the first time since March 21.
In cryptocurrencies, bitcoin last fell 0.21% to $68,327.00.
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