Dollar steady after US inflation data misses estimates

New York

THE US dollar ended unchanged on Friday, erasing an early drop after tamer-than-expected producer price inflation, with investors continuing to evaluate whether the Federal Reserve will act sooner to snuff out inflation if it persists.

The personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, increased 0.5 per cent, below economists' expectations of an 0.6 per cent increase. In the 12 months through May, the core PCE price index shot up 3.4 per cent, the largest gain since April 1992. Consumer spending, which accounts for more than two-thirds of US economic activity, held steady following an upwardly revised 0.9 per cent jump in April. Economists polled by Reuters had forecast consumer spending rising 0.4 per cent.

"The most interesting, salient takeaway from the data is that we're not seeing runaway inflation," said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York. "The Fed by holding its fire is probably on the right side of the trade at this point." Other data showed US consumer sentiment ticked up in June.

The dollar index against a basket of currencies ended unchanged on the day at 91.838, after dropping to 91.524. The previous Friday, the index rose to a two-month high after Fed policymakers on June 16 forecast two rate hikes in 2023, a faster-than-expected timetable to tighten.

Infrastructure spending is likely to boost the US economy, though probably not in the short-term.

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The British pound fell 0.33 per cent on the day to US$1.3875, weakening further a day after the Bank of England made no changes to monetary policy.

The greenback was steady at 110.83 Japanese yen, after reaching a 15-month high of 111.11 on Thursday. Data showed that core consumer prices in Tokyo were unchanged in June from a year earlier.

"Japan is a total outlier when it comes to one of the most crucial data points in the market's focus right now: inflation. It showed that Japan, unique among the major countries of the world, has no inflation," Marshall Gittler, head of investment research at BDSwiss, said in a report. REUTERS