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US dollar gains as inflation data backs smaller Fed cut

by Jessica Weisman-Pitts
2024 08 30T011524Z 1 LYNXMPEK7T013 RTROPTP 4 GLOBAL FOREX

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) -The U.S. dollar gained on Friday after data showed a key inflation measure came in line with forecasts, while personal spending and income increased, reinforcing expectations that the Federal Reserve will likely cut interest rates by a smaller 25 basis points next month.

The dollar rose 0.5% to 145.66 yen after the data. It was up 0.9% for the week, on track for its biggest weekly rise since mid-June.

But the greenback remained down 2.9% for August as a whole, falling for a second straight month versus the Japanese currency.

Friday’s data showed the personal consumption expenditures (PCE) price index rose 0.2% last month, in line with expectations, after an unrevised 0.1% advance in June. In the 12 months through July, the PCE price index increased 2.5%, matching June’s gain.

Consumer spending was also 0.5% higher last month after expanding 0.3% in June.

“Inflation prints are slowly but surely becoming boring again as this report continues the recent streak of benign core and headline inflation prints,” wrote Olu Sonola, head of U.S. economic research at Fitch Ratings, in an emailed note.

“Consumer spending continues to surprisingly exceed all expectations…A 25 basis-point interest rate cut is pretty much set in stone in September, but the Fed will still hope the jobs report next week does nothing to pile on the pressure for a 50 basis-point cut.”

U.S. rate futures on Friday implied a 31% chance of a 50 basis-point rate cut next month, down from Thursday’s 35% probability, LSEG calculations showed, with the market fully pricing in a 25 basis-point cut, the Fed’s first easing in more than four years.

Markets have factored in about 100 bps of cuts by the end of 2024.

The dollar index, a gauge of its value against six major peers, climbed to a 10-day high after the inflation data and was last up 0.1% at 101.52. On the week, it rose 0.8%, on track for its best weekly performance since early April.

This month, however, the index fell 2.4%, its weakest since November last year.

The dollar overall continued to benefit from month-end flows, having been sold after Fed Chair Jerome Powell at a Jackson Hole gathering last week gave the clearest signal yet that the U.S. central bank will cut interest rates at the September meeting.

In other currencies, the euro slipped against the dollar to $1.1074. It has fallen 1% this week, on track for its largest weekly loss since April.

The euro, however, rose 2.3% in the month of August, for its best monthly showing since November 2023, with the European Central Bank still on track to lower interest rates again next month.

The single currency fell to a more than one-week low on Thursday and ended down 0.4% after German inflation cooled more than expected, bolstering investors’ expectations of ECB cuts.

Currency

bid

prices at

30

August​

02:00

p.m. GMT

Descripti RIC Last U.S. Pct YTD Pct High Low

on Close Change Bid Bid

Previous

Session

Dollar 101.47 101.36 0.12% 0.10% 101.65 101.

index 24

Euro/Doll 1.1077 1.1077 0.01% 0.36% $1.1095 $1.1

ar 054

Dollar/Ye 145.54 144.96 0.43% 3.22% 145.725 144.

n 685

Euro/Yen 1.1077​ 160.6 0.39% 3.6% 161.29 160.

2

Dollar/Sw 0.8492 0.8473 0.23% 0.9% 0.851 0.84

iss 68

Sterling/ 1.3144 1.317 -0.17% 3.31% $1.32 $1.1

Dollar 054​

Dollar/Ca 1.3482 1.3485 -0.01% 1.72% 1.3509 1.34

nadian 66

Aussie/Do 0.6782 0.6798 -0.21% -0.51% $0.6817 $0.6

llar 775

Euro/Swis 0.9407 0.9385 0.22% 1.3% 0.9417 0.93

s 81

Euro/Ster 0.8426 0.8411 0.19% -2.79% 0.8426 0.84

ling 01

NZ 0.6253 0.6257 -0.05% -1.03% $0.6275 0.62

Dollar/Do 42

llar

Dollar/No 10.5921​ 10.4989 0.89% 4.51% 10.6055 10.4

rway 767

Euro/Norw 11.7321 11.6308 0.9% 4.56% 11.7383 11.6

ay 137

Dollar/Sw 10.2677 10.2239 0.43% 1.99% 10.2835 10.2

eden 09

Euro/Swed 11.3731 11.3231 0.44% 2.26% 11.3785 11.3

en 17

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Davide Barbuscia in New York and Harry Robertson in London; Editing by Ros Russell and Christina Fincher)

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