Gertrude Chavez-Dreyfus
NEW YORK (Reuters) – The dollar rose on Thursday as weaker-than-expected March U.S. producer prices did not ease concerns about persistent inflation that fueled expectations that the Federal Reserve is in no rush to cut interest rates this year. .
Fed officials speaking Thursday also reiterated the need for a patient approach to monetary easing.
The data showed the producer price index (PPI) rose 0.2% month-on-month in March, compared with a 0.3% rise expected by economists polled by Reuters. It grew 2.1% year-on-year, compared with forecast growth of 2.2%.
The US currency fell following the release of PPI data, but has since recovered its losses.
“The PPI data certainly helped smooth out some of the rough edges from yesterday’s data,” said Carl Sciamotta, chief market strategist at Corpay in Toronto.
“A number of components of the Fed’s preferred personal consumption expenditures index were much weaker than expected, but service cost growth remained elevated for the third month in a row, helping to ratify a more cautious approach to lowering interest rates.”
A separate report showed 211,000 initial U.S. jobless claims for the week ended April 6, compared with a forecast of 215,000, reflecting continued tightness in the labor market. The dollar showed little reaction as investors focused on inflation.
The dollar was unchanged against the yen at 153.24 yen in afternoon trading, after falling below 153 yen after the data. Earlier in the session, the dollar hit a new 34-year high of 153.32 yen.
The yen’s fall against the dollar revived fears of intervention as officials in Tokyo confirmed they were not ruling out any steps to combat excessive swings.
Japan intervened in the foreign exchange market three times in 2022, when the yen fell to a 32-year low of 152 per dollar.
The increase was 0.2% to 105.38.
According to producer price index data, the US interest rate futures market has estimated the likelihood of a Fed rate cut in September at 69%, the FedWatch CME tool showed. This chart comes after a higher-than-expected consumer price index on Wednesday last month. For several weeks, few futures have priced in June rate cuts.
Fed funds futures also cut the number of 25 basis points (bps) rate cuts this year to less than two, or about 43 bps, from about three or four a few weeks ago.
“Market interest rate expectations have not deviated significantly from yesterday’s levels, and the extremely large interest rate differential is keeping the US dollar elevated,” said Corpay’s Sciamotta.
In other currencies, the euro was last down 0.2% at $1.0716. It earlier fell to a two-month low of $1.0699 after the European Central Bank kept interest rates at a record high of 4%, as expected, but signaled it was preparing to cut them.
In the US on Thursday, the Federal Reserve made it clear that a rate cut is not imminent.
New York Fed President John Williams said that while the US central bank has made significant progress in reducing inflation, it does not yet need to move to an easier monetary policy setting given volatile inflation fluctuations.
“There is no clear need to adjust monetary policy in the near future,” Williams said, given the current state of the economy.
Richmond Fed President Thomas Barkin, an elected member of the Fed’s policy-setting committee this year, echoed the same sentiment. He said Thursday that the latest figures did not increase his confidence that price pressures are easing across the economy.