Harry Robertson and Tom Westbrook
LONDON/SINGAPORE (Reuters) – The Japanese yen rose for a second day on Thursday after data on Wednesday showed U.S. inflation slowing, while the dollar found support against other currencies after falling sharply the previous day.
US inflation slowed to 0.3% in April from a month earlier, down from 0.4% in March and below expectations for the next 0.4% reading, data showed on Wednesday.
Year-on-year core inflation, which excludes volatile food and energy prices, fell to its lowest level in three years at 3.6%. Meanwhile, retail sales remained flat, suggesting that conditions for the Federal Reserve to cut interest rates are taking effect.
The dollar fell 1% against the yen on Wednesday after the data and fell another 0.38% on Thursday to 154.32, falling to 153.6 before weak Japanese economic growth data took some of the shine off the yen.
The Japanese currency has fallen about 9.5% this year as the Bank of Japan kept monetary policy accommodative while higher Fed interest rates drew money into U.S. bonds and the dollar. The yen was particularly sensitive to any widening or closing of interest rate differentials.
The index, which tracks the currency against six major peers, was last up 0.11% at 104.32 on Thursday after falling 0.75% on Wednesday as investors raise their bets on a Fed rate cut, now suggesting two decline by the end of the year.
Some analysts say Fed officials will want to see evidence of easing inflation before approving cuts, as Minneapolis Fed President Neel Kashkari said Wednesday.
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Francesco Pesole, currency strategist at ING, said: “In practice there is not much reason for optimism. “Inflation is moving in the right direction, but still not at levels that would allow the Fed to cut rates.”
Pezole said investors are now awaiting US consumer spending inflation data at the end of May. “At this stage, I believe we can simply call for a couple more weeks of low volatility, lack of direction and range-bound trading.”
On Thursday, the euro hit a two-month high of $1.0895 before falling 0.1% to $1.0874. The British pound hit a one-month high of $1.2675 before falling slightly.
The Australian dollar, which rose 1% on Wednesday, hit a four-month high of $0.6714 but then stalled after a surprise rise in Australian unemployment.
It was last seen at $0.6684 as traders weighed any risk of further rate hikes in Australia.
touched a three-week high of $66,695 and then fell slightly.