Investing.com – The US dollar fell on Friday ahead of the release of key US inflation data that could lift sentiment ahead of next week's US Federal Reserve meeting.
At 4:55 a.m. ET (8:55 p.m. Japan time), the dollar index against a basket of six other currencies was trading 0.1% lower at 105.395, after rising as high as 106.00 on Thursday.
Dollar waits for PCE data
Data released Thursday showed the U.S. grew at an annual rate of 1.6% in the first three months, much slower than the expected 2.4%.
That said, the report also showed that underlying inflation, as measured by the Core Personal Consumption Expenditure Price Index, rose 3.7% in the first quarter, beating expectations for a 3.4% rise.
Fed officials have made clear in recent weeks that they remain concerned about inflation, dampening market expectations for an early rate cut.
All eyes now turn to the second half of the Fed's March data meeting, widely seen as the most important measure of inflation.
“The main currency drivers all point to a stronger dollar: rising U.S. Treasury yields, widening swap spreads in favor of the dollar, and falling stock prices,” ING analysts said in a note.
“If today's core PCE is 0.4% m/m, there is a good chance that the market will further reduce the US rate cut.”
Eurozone consumers keep inflation expectations in check
European markets benefited from a weaker dollar, rising 0.2% to 1.0746.
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According to the ECB's Consumer Expectations Survey, euro zone consumers expected inflation to rise to 3.0% over the next 12 months, slightly lower than the 3.1% expected last month.
This is the lowest number since December 2021.
However, inflation expectations over the next three years remained flat for the fourth month in a row at 2.5%, above the European Central Bank's target of 2.0%.
The ECB plans to cut interest rates in June, but the outlook remains uncertain due to rising energy costs, persistently high services inflation and continued geopolitical tensions.
The dollar rose 0.2% to 1.2532, benefiting from the recent weakness in the dollar.
ING said: “While it is clear that the May 9 BoE policy meeting will be the next big event for the pound, the data could still prove to be more significant given the split in the MPC.'' Yes,” he said.
USD/JPY hits new high in 34 years
In Asia, interest rates rose 0.6% to 156.58, surpassing the 156 level and setting a new 34-year high as interest rates were left unchanged after a historic rate hike in March.
The central bank also expects inflation to rise in the coming years, but also expects economic growth to slow, raising questions about how much room it has to keep raising interest rates.
Tokyo's softer-than-expected inflation data released early Friday further heightened doubts about the hawkish Bank of Japan.
The index rose 0.1% to 7.2466, staying close to a five-month high.
It rose 0.5% to 0.6552, supported by strong Australian inflation data. Coupled with the rise in CPI values earlier this week, bets on the country's interest rates extending for a long time widened.
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