US dollar gains as inflation data backs smaller Fed cut

Reuters

US dollar gains as inflation data backs smaller Fed cut

30Ago2024220 GMT

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U.S. PCE index rises 0.2 in July, in line with forecasts

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Dollar index on track for worst month since November 2023

Adds new comment, bullets, byline, FX table, updates prices

By Gertrude Chavez-Dreyfuss

NEW YORK, Aug 30 (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 JPY=EBS. 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 =USD. 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 EUR=EBS. 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
Description	RIC	Last	U.S. Close Previous Session	Pct Change	YTD Pct	High Bid	Low Bid
Dollar index	=USD	101.47	101.36	0.12%	0.10%	101.65	101.24
Euro/Dollar	EUR=EBS	1.1077	1.1077	0.01%	0.36%	$1.1095	$1.1054
Dollar/Yen	JPY=D3	145.54	144.96	0.43%	3.22%	145.725	144.685
Euro/Yen	EURJPY=	1.1077	160.6	0.39%	3.6%	161.29	160.2
Dollar/Swiss	CHF=EBS	0.8492	0.8473	0.23%	0.9%	0.851	0.8468
Sterling/Dollar	GBP=D3	1.3144	1.317	-0.17%	3.31%	$1.32	$1.1054
Dollar/Canadian	CAD=D3	1.3482	1.3485	-0.01%	1.72%	1.3509	1.3466
Aussie/Dollar	AUD=D3	0.6782	0.6798	-0.21%	-0.51%	$0.6817	$0.6775
Euro/Swiss	EURCHF=	0.9407	0.9385	0.22%	1.3%	0.9417	0.9381
Euro/Sterling	EURGBP=	0.8426	0.8411	0.19%	-2.79%	0.8426	0.8401
NZ Dollar/Dollar	NZD=D3	0.6253	0.6257	-0.05%	-1.03%	$0.6275	0.6242
Dollar/Norway	NOK=	10.5921	10.4989	0.89%	4.51%	10.6055	10.4767
Euro/Norway	EURNOK=	11.7321	11.6308	0.9%	4.56%	11.7383	11.6137
Dollar/Sweden	SEK=	10.2677	10.2239	0.43%	1.99%	10.2835	10.209
Euro/Sweden	EURSEK=	11.3731	11.3231	0.44%	2.26%	11.3785	11.317

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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