By Harry Robertson and Tom Westbrook
LONDON/SINGAPORE (Reuters) – The Japanese yen rose for a second day on Thursday after data on Wednesday showed a slowdown in U.S. inflation, while the dollar found a base against other currencies after falling sharply the day before.
U.S. inflation slowed to 0.3% in April from a month earlier, down from 0.4% in March and below expectations for another 0.4%, data showed on Wednesday.
Annual core inflation – which excludes volatile food and energy prices – fell 3.6% to a three-year low. Meanwhile, retail sales remained steady, indicating that the conditions for Federal Reserve rate cuts are in place.
The dollar fell 1% against the yen after the data on Wednesday and fell another 0.38% to 154.32 on Thursday, after falling as low as 153.6 before weak Japanese growth data took some of the shine of the yen.
The Japanese currency has fallen about 9.5% this year as the Bank of Japan has kept monetary policy loose while higher Fed interest rates have drawn money into U.S. bonds and the dollar. The yen has been particularly sensitive to any widening or closing of the interest rate differential.
The , which tracks the currency against six major peers, was last up 0.11% at 104.32 on Thursday, after falling 0.75% on Wednesday as investors increased their bets on Fed rate cuts, now anticipating two reductions by the end of the year.
Some analysts said Fed officials want to see evidence of inflation’s downward path before approving cuts, a point emphasized Wednesday by Minneapolis Fed President Neel Kashkari.
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Francesco Pesole, currency strategist at ING, said: “In practice, there is not much to be optimistic about. Inflation is moving in the right direction, but still not at a level that would allow the Fed to raise interest rates. to lower.”
Pesole said investors are now waiting for U.S. consumer spending inflation data at the end of May. “My view at this stage is that we can simply wait a few more weeks of low volatility, lack of direction and trading within a certain range.”
The euro hit a two-month high at $1.0895 on Thursday before falling to trade 0.1% lower at $1.0874. The British pound hit a one-month high of $1.2675 before falling back slightly.
The Australian dollar, which rose 1% on Wednesday, hit a four-month high at $0.6714 before pausing after an unexpected rise in Australian unemployment.
The last reading was $0.6684 as traders priced in any risk of a further rate hike in Australia.
hit a three-week high of $66,695 before falling slightly.
