Karen Brettell
NEW YORK (Reuters) – The dollar fell on Wednesday after data showed consumer prices rose less than economists expected in May, but pared losses after Federal Reserve officials’ updated interest rate forecasts showed expectations of only one cut. rates this year.
The headline consumer price index (CPI) was unchanged for the month, falling below expectations for a 0.1% increase. Core prices rose 0.2%, below economists’ forecasts for a 0.3% rise.
That bolstered expectations that the U.S. central bank will cut rates twice by 25 basis points this year, the first of which is likely to come in September. But the Fed’s “dot plot” showing only one cut this year clouds that view.
“Fed officials were clearly not influenced by today’s CPI report and were reluctant to make changes to their forecast at the last minute,” said Adam Button, chief currency analyst at ForexLive in Toronto.
As of March, Fed policymakers were forecasting three rate cuts this year. The US central bank on Wednesday also delayed the start of rate cuts, possibly to December.
Fed Chairman Jerome Powell said after the meeting that the interest rate forecast is “quite conservative” and may not be confirmed by incoming data and is subject to revision.
However, he was not as forthcoming about the possibility of a rate cut in September as some investors had expected.
“Many in the market thought Powell might start to advocate for a September rate cut, but instead he made no fresh hints of easing,” Button said. “This has led to some US dollar buying.”
The price was last down 0.5% on the day at 104.73 after previously falling to 104.25. It hit a four-week high of 105.46 on Tuesday.
The US dollar also fell as the benchmark rate briefly hit its lowest level since April 1 at 4.25%.
Fed futures traders now rate the likelihood of a rate cut by September at 63%, up from more than 70% earlier on Wednesday, according to CME’s (NASDAQ:) FedWatch Tool.
Expectations for a rate cut were volatile last week, with traders cutting bets on a September rate cut after Friday’s May U.S. jobs report showed employers added more jobs than expected during the month. Wage inflation also rose more than expected.
Thursday’s producer price data will be the next source of information on the likely path of the personal consumption price index (PCE), the Fed’s preferred inflation gauge.
“The soft numbers could shift risks to a weaker underlying PCE at the end of the month,” said Sean Osborne, chief currency strategist at Scotiabank in Toronto.
The euro added 0.63% to $1.0807 to reach $1.0852. It fell to $1.07195 on Tuesday, its lowest level since May 2.
The single currency has come under pressure after far-right parties gained an advantage in European Parliament elections, prompting French President Emmanuel Macron to call early elections in his country in two rounds on June 30 and July 7.
On Wednesday, Macron confirmed he would not resign if his camp did not win the election. Marine Le Pen’s National Rally is the most popular party in France ahead of parliamentary elections.
The Bank of Japan will also meet this week and is expected to keep interest rates steady and consider whether to offer clearer guidance on how it plans to shrink its huge balance sheet.
The dollar fell 0.17% to 156.8 yen after trading at a one-week high of 157.40 on Tuesday.
The yen’s fall to a 34-year low of 160.245 per dollar in late April triggered several rounds of official Japanese intervention totaling 9.79 trillion yen ($62 billion).
In cryptocurrencies, Bitcoin added 1.85% to $68,527.