Dollar firms as inflation data backs Fed hike

THE US dollar rose on Friday (Apr 28) after data showed inflation grew in March, though at a slower pace, keeping the US Federal Reserve still firmly on track to raise interest rates at the coming monetary policy meeting this week.

THE US dollar rose on Friday (Apr 28) after data showed inflation grew in March, though at a slower pace, keeping the US Federal Reserve still firmly on track to raise interest rates at the coming monetary policy meeting this week.

The yen, meanwhile, fell across the board, after the Bank of Japan said it would maintain ultra-low interest rates as expected, and unanimously decided to make no changes to its yield curve control policy. The Japanese currency plunged to its lowest since September 2008 against the euro, and its weakest level in seven weeks versus the dollar.

The euro was last up 1.5 per cent against the yen at 150. On the week, it rose 1.8 per cent.

The dollar last traded 1.7 per cent higher at 136.235 yen, posting a weekly gain of 1.6 per cent higher, its best weekly performance since late February.

Friday’s US data showed the personal consumption expenditures (PCE) price index edged 0.1 per cent higher in March, after rising 0.3 per cent in February. In the 12 months through March, the PCE price index increased 4.2 per cent higher – after climbing 5.1 per cent higher in February.

Excluding the volatile food and energy components, the PCE price index inched up 0.3 per cent after increasing at the same rate in February.

The so-called core PCE price index gained 4.6 per cent on a year-on-year basis in March, after rising 4.7 per cent higher in February. The Fed tracks the PCE price indexes for its 2 per cent higher inflation target.

“You probably need a much bigger slowing in the growth rate to get the Fed comfortable that it’s succeeded in its mission; it’s not there yet,” said Joseph Lavorgna, chief US economist at SMBC Nikko Securities in New York.

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Euro falls on GDP data, yen slumps as BOJ maintains ultra-low rates

Following the inflation data, the rate futures market has priced in a 90 per cent higher chance of a 25 basis-point hike this week.

The euro, meanwhile, slipped 0.1 per cent against the dollar to US$1.1017. Economic data painted a mixed picture for growth and inflation across the eurozone, raising uncertainty around the size of the European Central Bank’s expected interest rate hike this week.

Preliminary data showed gross domestic product in the eurozone expanded by 0.1 per cent in the first quarter, below expectations in a Reuters poll for a 0.2 per cent increase. REUTERS