US Dollar Gains After Inflation Data Drops Japanese Yen To a New Low

(CTN News) – The dollar gained against the yen on Friday, boosted in part by US inflation data that showed no sign of easing. This was in line with forecasts and confirmed expectations that the Federal Reserve would likely delay cutting interest rates until later in the year.

Following the BOJ’s two-day policy meeting, the dollar peaked against the yen, although future rate hikes were flagged. Market participants were alert to Japan’s potential intervention to prop up the yen, which was at multi-decade lows.

After briefly falling as low as 154.97 earlier in the session, the dollar hit 158.33 yen. It has been speculated that the BOJ, acting on behalf of the Ministry of Finance, may have checked currency rates, a sign that it is preparing to intervene.

The move did not have an immediate explanation.

The focus was on inflation in the United States.

In March, the price index for personal consumption expenditures rose by 0.3%, compared with a 0.3% rise predicted. PCE inflation rose 2.7pc in the 12 months through March, in contrast to expectations of 2.6pc.

Among the inflation measures tracked by the Fed for its 2 percent inflation target is the PCE price index. To bring inflation back to target, monthly rates of inflation must average 0.2pc over time. The Fed’s preferred inflation gauge has steadily been heading north since the start of 2024, regardless of the Friday result, writes Douglas Porter, chief economist at BMO.

The rise of 0.32 percent prompted a sigh of relief on the market, but Porter noted that it matched the fastest monthly rise in the decade before the outbreak. According to Porter, that won’t give the Fed “confidence” that inflation is calming.

A week ago, the CME’s FedWatch tool price in a 68pc chance of a Fed cut at the September meeting, down from 58pc now. The probability of a Fed easing in December is over 80 percent.

Dollar index rose 0.47 percent to 106.09.

There was a 0.2 percent drop in the euro to $1.069. This was its largest weekly rise since early March, up 0.4pc.
It reached a new 16-year high of 169.29 yen against the yen. Weekly, the euro gained 2.6pc against the yen, marking its best showing since mid-June 2023. There was a 0.1 percent drop in sterling to $1.249. This is its largest weekly gain since early March, with a gain of 1.1 percent against the dollar.

Japanese central bank left short-term interest rates at 0-0.1% on Friday and raised inflation forecasts by a small amount. As a result of the decision, investors have become more confident that only small changes will be made in the future; they had not expected a policy shift.

According to BOJ Governor Kazuo Ueda, currency rates are not directly affected by monetary policy, but exchange-rate volatility affects the economy.

According to Ueda, if yen moves have an effect on the economy and prices that cannot be ignored, it might be a reason to adjust policy. The focus of currency investors is now on the Federal Open Market Committee (FOMC) meeting next week.

Considering better-than-expected economic data, the market is expecting the Fed to be hawkish at its meeting and the dollar to strengthen.

The bank believes Fed Chair Jerome Powell will not rule out rate hikes, which is necessary to have a data-dependent policy, according to Brian Dangerfield, head of G10 FX strategy, US.at NatWest. Dangerfield said the FOMC’s base case doesn’t include a rate hike.

SEE ALSO:

Kristi Noem Condemned For ‘Twisted’ Admission Of Dog Killed By Conservatives