By Alden Bentley and Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) – The U.S. dollar fell on Thursday, except against the yen, wavering after data showed an unexpected slowdown in economic growth and an unwanted acceleration in inflation, potentially prompting the Federal Reserve to clamp down on a turn towards a more flexible interest rate.
While the dollar was little shaken against the embattled yen, it otherwise rose only briefly after the Commerce Department reported that US gross domestic product grew at an annualized rate of 1.6% in the January-March period, slower than the 2.4% expected by economists surveyed. by Reuters.
The report also showed that underlying inflation, as measured by the price index for major personal consumption expenditures (PCE), rose 3.7% in the first quarter, meeting expectations for a 3.4% increase overshadowed.
The inflation surprise puts an even bigger than usual focus on Friday’s release of PCE price index data for March. The PCE index and the core PCE index, which includes food and energy prices, are among the most important gauges of the Fed’s price behavior. Inflation remains stubbornly above the US central bank’s inflation target of 2%.
“The market reaction to the (GDP) data tells everything you need to know about what investors are focusing on and it’s mostly about inflation and not growth,” said Boris Kovacevic, global market strategist at Convera in Vienna, Austria.
“The print on the 3.7% PCE suggests that tomorrow’s PCE figure will be higher.”
The yen, meanwhile, hit a new 34-year low against the dollar and a 16-year low against the euro on Thursday as investors expect a Bank of Japan (BOJ) policy meeting ending Friday will not be aggressive enough to support the economy. Japanese coin.
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The , a measure of the U.S. currency’s value against six rivals, reversed a small overnight loss after data caused Treasury yields to rise and peak at 106.00. The last one stood at 105.60, with a discount of 0.21%.
Conversely, the dollar fell to a low of 155.31 yen after the GDP data, but quickly reversed to end 0.19% higher at 155.63.
It peaked at a 34-year high of 155.75 yen, while the euro/yen peg rose to 167.025, a 16-year high.
Investors suspected that the dollar/yen level of 155 would be a line in the sand for Japanese authorities, above which the BOJ could intervene to support the currency. But it is a moving target and the market has been on high alert for such actions from central banks since the yen fell below 152 per dollar about two weeks ago.
“I think Japanese officials have been very clear that they’re not really looking at a certain level,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.
“We should expect an aggressive stance from the BOJ, where they run the policy and they talk about how yen weakness could contribute to inflation and what they would respond to.”
The euro rose 0.26% to $1.0725. Sterling strengthened 0.35% to $1.2504.
Based on the GDP data, the U.S. interest rate futures market estimated a 58% chance of a Fed rate cut in September, up from 70% late Wednesday, according to CME Group’s (NASDAQ:) FedWatch tool.
Interest rate futures traders on Thursday were factoring in a 68% chance that the Fed’s first rate cut since 2020 could come at its November meeting.
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“The inflation numbers… may even point to the need for further tightening,” said Stuart Cole, chief macroeconomist, at Equiti Capital in London. “We know that getting the CPI (consumer price index) back to target is the Fed’s main goal and therefore today’s figure on balance is likely to further hinder a rate cut.”
In cryptocurrencies, bitcoin gained 0.80% to $64,492.00. rose 0.94% to $3158.95.
