US dollar slides against major currencies after CPI report

THE US dollar fell on Wednesday (May 15) after US consumer prices increased less than expected in April, suggesting inflation has resumed a downward trend in the second quarter and that the Federal Reserve will cut interest rates in September.

The consumer price index (CPI) rose 0.3 per cent last month after advancing 0.4 per cent in March and February, the Labor Department’s Bureau of Labor Statistics said. In the 12 months through April, the CPI increased 3.4 per cent after climbing 3.5 per cent in March.

Economists polled by Reuters had forecast the CPI gaining 0.4 per cent on the month and advancing 3.4 per cent year on year.

The dollar index, which measures the greenback against a basket of major currencies including the yen and the euro, fell 0.45 per cent to 104.56, with the euro up 0.34 per cent at US$1.0855. Against the yen, the dollar weakened 0.72 per cent at 155.28.

Fed chair Jerome Powell gave a bullish assessment on Tuesday of where the US economy stands, with an outlook for continued above-trend growth and confidence in falling inflation that, while eroded by recent data, remains largely intact.

Deutsche Bank strategist Alan Ruskin noted rate path expectations would require more than a single modest upside or downside surprise to swing markets considerably.

Japanese long-term yields stood at 0.955 per cent, after rising to more than 10-year peaks earlier this week as the Bank of Japan (BOJ) sent a hawkish signal to markets on Monday by announcing a cut in offer amounts for a segment of bonds at a bond-buying operation.

The dollar’s surge to a 34-year peak of 160.245 yen on April 29 triggered two rounds of aggressive yen buying that traders and analysts suspect was the work of the BOJ and Japanese finance ministry (MOF).

Bank of America (BOA) said the MOF is suspected to have intervened on April 29 at 159.4 yen per dollar and May 1 at 157.5.

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Shusuke Yamada, rates and foreign exchange strategist at BOA Japan, said that if the Fed starts cutting rates in December, which is the BOA base case, the MOF will need to intervene to keep the dollar below the 160 threshold. The MOF may spend up to US$300 billion in foreign exchange interventions, and the US dollar would start correcting in the fourth quarter as the Fed starts cutting rates, he added.

The dollar dropped 0.6 per cent to 10.7525 versus the Norwegian krone after hitting 10.7418, its lowest level since April 10, with analysts saying the gap between US and Norwegian rates might have peaked.

Data showed on Friday that Norway’s core inflation eased less than expected in April after governor Ida Wolden Bache said the central bank expects to keep rates on hold for some time.

Elsewhere, the yuan bounced back from a two-week low versus the dollar as a report of a possible plan to ease the country’s housing glut boosted sentiment, outweighing US President Joe Biden’s decision to impose steep tariff increases on an array of Chinese goods. The dollar dropped 0.27 per cent to 7.2210 yuan in offshore trading. REUTERS