Investing.com – The U.S. dollar rose in European trading on Friday but was on track for a big weekly decline after cooling inflation and weak retail sales put renewed focus on Federal Reserve interest rate cuts.
At 04:10 ET (08:10 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.2% higher at 104.580, marginally above a five-week low just below 104 earlier this week.
Dollar remains stable after aggressive Fed speech
The dollar has recovered to some extent as several Fed officials, particularly members of the bank’s rate-setting committee, said they needed much more confidence that inflation would fall barring any easing of inflation in April .
“I now believe it will take longer to reach our 2% target than I previously thought,” Loretta Mester, chair of the St. Louis Federal Reserve, said Thursday, adding that further monitoring of incoming data will be necessary.
President John Williams of the Federal Reserve Bank of New York agreed with this view.
“I don’t see any indicator now that tells me… that there is a reason to change the course of monetary policy now, and I don’t expect that. I don’t expect to get that greater confidence that we need. Inflation is moving towards a 2% target in the very near term,” Williams said.
However, the dollar is still on track for a weekly loss of around 0.7% after softer-than-expected US data raised expectations of two rate cuts this year, likely starting in September.
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The US was also flat and weaker than expected in April, with industrial production falling unexpectedly.
“Our near-term view remains that we could see further stabilization of the USD crosses as markets await the next key data input: the April core PCE on May 31,” ING analysts said in a note.
The euro slides ahead of the CPI release
In Europe, it traded 0.1% lower at 1.0860 after rising from 1.0895 in the wake of US inflation data, but the single currency is still up about 0.9% against the dollar this week .
The Council’s final reading will come later in the session and is expected to show that inflation rose by 2.4% year-on-year in April.
Rates are widely expected to be cut in June, but traders remain uncertain about how many, if any, cuts the central bank will agree to over the rest of the year.
Traders have priced in 70 basis points of ECB cuts this year – far more than the just under 50 basis points of easing priced in for the Fed.
fell 0.1% to 1.2658, but is still on track to rise about 1% this week.
The Bank of England is also expected to cut interest rates from a 16-year high this summer, but volatility is likely to remain contained ahead of the release of key UK inflation figures next week.
The yen falls after weak Japanese GDP data
In Asia, yields rose 0.3% to 155.87, almost above 156, after weaker-than-expected Japanese first-quarter data.
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traded 0.1% higher at 7.2209, returning to a six-month high above 7.22, after data earlier Friday showed growth in April was stronger than expected, but growth slowed sharply while the decline of Chinese house prices accelerated last month.
