US Inflation Meets Expectations, Causing Dollar Dip

(CTN News) – On Thursday, the dollar fell after US inflation came in line with economists’ expectations in January, easing worries that prices could rise again.

As a policymaker hinted at exiting ultra-easy policies, the yen rose, while bitcoin remained near its two-year high.

Price growth in the United States picked up in January, but inflation increased at its smallest level in nearly three years, keeping the Federal Reserve on the verge of a June rate cut.

Market participants’ worst fears have been largely alleviated by this print, says Karl Schamotta, chief market strategist at Corpay in Toronto. Traders were concerned that underlying pressures could turn out to be hotter than expected due to the CPI print.

On February 13, consumer price inflation data (CPI) showed prices rose more than expected in January, which pushed the dollar index to a three-month high.

As traders look for clues on when the Fed might start cutting rates, they are closely watching economic data.

Inflation is likely to continue to ease towards the central bank’s 2% annual target in the coming months, according to many economists. The Fed would then begin easing and send the dollar down.

The weak greenback on Thursday is also likely due to month-end rebalancing, as some investors prepare for a weaker dollar, Schamotta said.

A lot of US economic data points to a cooling, which could damage that US exceptionalism trade and cause dollar flows to flow out.

CME Group’s FedWatch Tool shows traders are pricing in a 66% probability that the Fed will cut rates in June, up from a 63% probability on Wednesday.

Dollar index last fell 0.19% on the day to 103.74. At $1.0848, euro gained 0.11%.

On Thursday, European data showed that price pressures slowed in the region, but there were pockets of strength.

In February, German inflation slowed to 2.7% due to lower energy prices. Despite a slight increase, France’s inflation slowed as well, and Spain’s slowed more sharply.

Prior to Friday’s EU-wide release, individual euro zone countries are releasing their February inflation data for February, which is expected to show headline inflation slowed to 2.5% year-on-year from 2.8% in January.

A Bank of Japan board member said there are finally prospects for reaching the bank’s 2% inflation target, paving the way to leave behind negative rates and yield caps.

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