By Chibuike Oguh
NEW YORK (Reuters) -The U.S. dollar retreated from a two-year high on Friday but was on track for a third straight week of gains, with data showing a slowdown in inflation two days after the Federal Reserve cut interest rates and indicated Inflation was persistent enough to reverse austerity in 2025.
The dollar fell 0.72% against a basket of six other currencies to 107.64, after peaking at 108.54 – its highest level since November 2022. The dollar was expected to end the week 0.72% higher end.
Commerce Department data show that the personal consumer expenditures price index – the Fed’s preferred inflation gauge – rose 0.1% in November, following an unchanged 0.2% increase in October.
But in the 12 months to November the PCE price index rose 2.4%, compared with a rise of 2.3% in the year to October.
The Fed cut rates by 25 basis points on Wednesday, with officials signaling fewer cuts would come in 2025 as inflation remained above the target range despite the recent downward trajectory.
The yield on US 10-year benchmark bonds fell 6.2 basis points to 4.51%, after hitting a 6.5-month high following the Fed’s interest rate decision.
“Today’s inflation numbers were more benign than feared; the Fed shifted its focus back to inflation at this week’s meeting, and the numbers weren’t that worrying then,” said Adam Button, chief currency analyst at ForexLive.
“I think the market has heard the Fed’s words and has become concerned about inflation. But the numbers show it is still slowing and certainly not at worrying levels.
The US government will begin a partial shutdown if Congress does not extend the deadline for passing a spending bill backed by newly elected President Donald Trump by midnight on Friday. The bill was not adopted in the House of Representatives on Thursday.
The dollar weakened 0.79% to 0.892 Swiss francs, on track for a weekly loss.
The euro edged higher after plunging to a one-month low of $1.03435 during the session, on track for a third straight week of losses, pressured in part by Trump’s comments that the European Union would want more U.S. oil and have to buy gas to make up for the problems. its ‘massive deficit’ with the world’s largest economy or face tariffs. It last rose 0.76% to $1.044175.
The dollar fell to a five-month low of 157.93 Japanese yen after the Bank of Japan left interest rates unchanged. It was last down 0.89% at 156.01 yen.
Sterling fell to a one-month low of $1.2475 but was last up 0.77% at $1.25990, still on track for a third straight week of losses. The Bank of England left interest rates unchanged on Thursday.
The dollar weakened 0.18% to 7.295 in the offshore market. The Australian dollar weakened 0.43% to $0.6263, while the New Zealand dollar rose 0.53% to $0.566.
“There’s actually a rate play between Wednesday’s Fed meeting and that’s not so much what they did, but the catalyst was the change in economic projections for the Fed funds rate next year,” said Joseph Trevisani, senior analyst at FXStreet .com .
“The market sees the Fed pulling back. I’ve long thought they would pause in January. I’m pretty sure they will.”
Currency bid prices at 6:57 PM GMT on December 20
Description RIC Last US Close Previous session Pct Change YTD Pct High bid Low bid
Dollar index 107.66 108.43 -0.7% 6.20% 108.54 107.58
Euro/Dollar 1.0438 1.0364 0.72% -5.43% $1.0445 $1.0344
Dollar/yen 156.09 157.335 -0.77% 10.69% 157.875 155.975
Euro/yen 162.93 163.13 -0.12% 4.69% 163.66 162.36
Dollar/Swiss 0.892 0.8987 -0.76% 5.97% 0.899 0.8917
Sterling/dollar 1.2595 1.2503 0.76% -1.01% $1.2613 $1.2475
Dollar/Canadian 1.4361 1.4399 -0.25% 8.35% 1.4435 1.4336
Aussie/Dollar 0.6263 0.6238 0.46% -8.1% $0.6274 $0.6215
Euro/Swiss 0.9308 0.9312 -0.04% 0.24% 0.9319 0.9287
Euro/British Pound 0.8284 0.8287 -0.04% -4.43% 0.8313 0.8272
New Zealand dollar/dollar 0.566 0.5631 0.55% -10.4% $0.5672 0.5615
Dollar/Norway 11.3073 11.4263 -1.04% 11.57% 11.4726 11.3077
Euro/Norway 11.8051 11.856 -0.43% 5.18% 11.892 11.8072
Dollar/Sweden 11.0032 11.0238 -0.19% 9.3% 11.0608 10.9884
Euro/Sweden 11.4869 11.4283 0.51% 3.25% 11.4929 11.431
