NEW YORK/LONDON: The dollar rebounded from a three-week low in choppy trading on Friday, as a round of US economic data suggested that inflation continued its red-hot rise in June, keeping the Federal Reserve on track to raise interest rates as aggressively as it deems necessary.
The yen fell from six-week peaks against the dollar as investors digested Friday’s data, which showed US inflation perked up in June.
The personal consumption expenditures (PCE) price index jumped 1.0% last month, the largest increase since September 2005 and followed a 0.6% gain in May. In the 12 months through June, the PCE price index advanced 6.8%, the biggest gain since January 1982. The PCE price index rose 6.3% year-on-year in May. Excluding the volatile food and energy components, the PCE price index shot up 0.6% after climbing 0.3% in May.
“The buck seems to be improved somewhat over peers because the PCE does indeed indicate that inflation has not necessarily cooled for personal items, thus giving the Fed enough room to hike as they have been telegraphing,” said Juan Perez, director of trading at Monex USA in Washington.
Another key indicator, the US employment cost index (ECI), also increased. The ECI, the broadest measure of labor costs, rose 1.3% last quarter after accelerating 1.4% in the January-March period, the Labor Department said on Friday.
The index is widely viewed as one of the better gauges of labor market slack and a predictor of core inflation, as it adjusts for composition and job-quality changes. It is being closely tracked for signs of whether wage growth has peaked.
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