U.S. economic data released on Friday (29th) was mixed, with inflation indicators favored by the Federal Reserve (Fed) picking up, but consumer inflation expectations fell slightly. The greenback posted its biggest monthly decline against the yen since July 2020 as the dollar slumped to a three-week low against major currencies at this stage as recession fears temporarily overshadowed inflation fears.
The ICE U.S. Dollar Index (DXY), which tracks the greenback’s strength against six major currencies, fell 0.3 percent to 105.89 in late New York trading after earlier dipping to 105.53, its worst loss since July 19.
The US Commerce Department announced on Friday that the annual growth rate of the core personal consumption expenditures (PCE) price index in June was 4.8%, up from the previous month and higher than market expectations, and the monthly growth rate also rose from 0.3% to 0.6%. This is the inflation indicator that the Fed prefers for decision-making.
The dollar rallied immediately after the PCE data, but pared gains after the University of Michigan reported that consumer inflation expectations for July had cooled. In June, Powell cited U.S. inflation expectations as the key to making the Fed more aggressive in raising interest rates.
On the same day, the Labor Department released the Employment Cost Index (ECI), the broadest measure of labor costs, which rose 1.3% in the second quarter, down slightly from 1.4% in the first quarter.
The ECI is used to assess job market slack and forecast core inflation. Action Economics analyzed that the ECI, which had set off alarm bells for the Fed, was one of the keys to the previous move to a 3-yard rate hike.
The dollar also came under selling pressure following the release of the Chicago manufacturing index, which fell to 52.1 from 56, a 23-month low.
The mixed data underscores the uncertain outlook for the U.S. economy. Karl Schamotta, chief market strategist at Corpay, said the U.S. nonfarm payrolls report for July next week could spark market volatility.
The dollar’s depreciation is also linked to the end-of-quarter unwinding, as investors enter a period of preparation for slower inflation and economic growth, which will move interest rate differentials against the dollar, Schamotta said.
After a flurry of economic data on Friday, interest rate futures markets forecast a 72 percent chance of a 2-yard (50 basis point) rate hike by the Fed in September and a 28 percent chance of a 3-yard rate hike.
The interest rate futures market also predicts that the Fed’s cycle of interest rate hikes will peak in February 2023, a delay from December this year before the announcement.
Against the dollar, the euro gained 0.2% to trade at $1.0213 against the dollar.
The dollar fell 0.7% against the yen to 133.42 yen per dollar, the most this month since July 2020.
The yen has been the most bearish currency under the widening interest rate gap between the United States and other countries, and the net short position is currently slightly reduced to 5.4 billion US dollars, which is still well above the historical average.
As of Thursday (28th) at about 6:00 Taiwan time Price:
The dollar index was at 105.8269. -0.34% EUR/USD (EUR/USD) is quoted at 1 EUR = 1.0225 USD. +0.30% GBP/USD is quoted at $1.2175 per pound. +0.00% The Australian dollar to US dollar (AUD/USD) exchange rate is quoted at 1 Australian dollar to US$0.6984. -0.06% The US dollar to Canadian dollar (USD/CAD) exchange rate was quoted at 1.2794 Canadian dollars for 1 US dollar. -0.09% The dollar/yen (USD/JPY) rate was quoted at 133.19 yen per dollar. -0.83%