Investing.com – The U.S. dollar fell on Friday ahead of key U.S. inflation data that could weigh on sentiment ahead of next week’s Federal Reserve meeting.
At 04:55 ET (0855 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was trading 0.1% lower at 105.395, having risen to 106.00 on Thursday.
Dollar awaits PCE data
Data released Thursday showed the U.S. economy grew at an annual rate of 1.6% between January and March, much slower than the 2.4% expected.
However, the report also showed that core inflation, as measured by the core personal consumption expenditure price index, rose 3.7% in the first quarter, beating forecasts for a 3.4% rise.
Fed officials have made it pretty clear over the past few weeks that they remain concerned about inflation, prompting the market to curb expectations that interest rates will be cut soon.
Attention now turns to the later release of March data, widely seen as the Fed’s most important indicator of inflation.
“Key exchange rate drivers point to a stronger dollar: higher Treasury yields, widening swap differentials in favor of the dollar and falling equities,” ING analysts said in a note.
“There is a strong possibility that markets will further reduce US rate cuts if core PCE is 0.4% m/m today.”
Eurozone consumers keep inflation expectations in check
In Europe, the index rose 0.2% to 1.0746, helped by a weakening dollar.
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Eurozone consumers expect inflation to be 3.0% over the next 12 months, just below the 3.1% expected a month earlier, according to the ECB’s consumer expectations survey.
This was the lowest figure since December 2021.
However, inflation expectations for the three years ahead remained stable 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 clouded by rising energy prices, persistently high services inflation and ongoing geopolitical tensions.
rose 0.2% to 1.2532, taking advantage of recent dollar weakness.
“The Bank of England policy meeting on May 9 is clearly the next big event for the pound, but the data could still be more important given the divided MPC,” ING said.
USD/JPY hits new 34-year high
In Asia, the index rose 0.6% to 156.58, breaking above the 156 level and hitting new 34-year highs after interest rates were left unchanged following a historic hike in March.
The central bank also forecast higher inflation in coming years but also forecast weaker economic growth, raising doubts about how much room it has to keep raising interest rates.
Softer-than-expected inflation data from Tokyo released earlier on Friday further raised doubts about the Bank of Japan’s aggressive policy stance.
The pair rose 0.1% to 7.2466, remaining near a five-month high.
rose 0.5% to 0.6552, helped by strong inflation data in Australia, which coupled with higher CPI readings earlier this week prompted bets on higher, longer-term rates in the country.
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