Chuck Mikolajczak
NEW YORK (Reuters) – The dollar edged up slightly on Friday following U.S. consumer sentiment data as investors digested a package of comments from Federal Reserve officials, with attention beginning to turn to key inflation indicators next week.
The dollar fell slightly and rose slightly after preliminary University of Michigan consumer sentiment data came in at 67.4 for May, a six-month low and below the estimate of 76.0 from economists polled by Reuters. In addition, annual inflation expectations rose to 3.5% from 3.2%.
The dollar weakened on Thursday after better-than-expected data on initial jobless claims fueled expectations of a weakening labor market, adding to other recent data pointing to a slowing economy overall.
The index, which measures the dollar against a basket of currencies, rose 0.09% to 105.31, while the euro fell 0.08% to $1.0772. The dollar was on track for its first weekly gain after two straight weeks of declines.
Next week, investors will be watching inflation indicators in the form of the Consumer Price Index (CPI) and Producer Price Index (PPI), as well as retail sales data.
“I don’t think the CPI will change people’s minds; price pressure is still elevated, but it will be a decline, it will just be a softer reading compared to last year,” said Mark Chandler, chief market strategist at Bannockburn Global Forex in New York.
“So it’s not so much a matter of magnitude as it is a matter of direction.”
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The dollar was also supported by comments from Dallas Federal Reserve President Lori Logan, who said it was unclear whether monetary policy had been tight enough to bring inflation down to the U.S. central bank’s 2% target and that it was too early to cut interest rates.
That contradicted previous comments from Atlanta Federal Reserve President Raphael Bostic, who said the Fed was likely to continue cutting rates this year even if the timing and extent of policy easing were uncertain. Additionally, Chicago Federal Reserve President Austan Goolsbee said he believes U.S. monetary policy is “relatively restrictive.”
The comments capped a week of disagreement among Fed officials over whether rates were high enough.
Following last week’s softer-than-expected US jobs report and the Federal Reserve’s policy announcement, markets are forecasting a contraction of around 50 basis points (bps) this year, with a 62.2% chance of a contraction of at least 25 basis points in September, according to the FedWatch CME tool.
Against the Japanese yen, the dollar strengthened 0.26% to 155.86 and was up about 1.9% for the week against the Japanese currency after falling 3.4% last week, its biggest ever weekly interest rate decline since early December 2022 following two proposed interventions by the Bank of Japan. Japan.
Japanese Finance Minister Shunichi Suzuki said on Friday the government would take appropriate action on foreign exchange if necessary, echoing recent comments by other officials.
Sterling jumped 0.02% to $1.2525 after earlier hitting $1.2541 following data showing the UK economy grew the most in nearly three years in the first quarter of 2024, ending a shallow recession it had been in entered into the second half of last year.
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