By Chuck Mikolajczak
NEW YORK (Reuters) – The dollar fell on Friday after U.S. inflation data showed price pressures continue to ease, while the yen strengthened against the dollar after Shigeru Ishiba, seen as an interest rate hawk, was set to become Japan’s next prime minister become. .
The US personal consumption expenditure (PCE) price index rose 0.1% in August, matching expectations of economists polled by Reuters, after rising 0.2% unchanged in July. In the 12 months to August, the PCE price index rose 2.2%, after rising 2.5% in July.
In addition, consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.2% last month, following an unchanged 0.5% increase in July. The data was slightly below the 0.3% estimate but indicated the economy still maintained some momentum in the third quarter.
The Federal Reserve has recently signaled a shift in focus away from inflation and toward keeping the labor market healthy, but last week made a larger-than-normal rate cut of 50 basis points (bps).
“(Fed Chairman) Powell can breathe a sigh of relief,” said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.
“After pushing for a 50 basis point cut instead of a more conventional 25 basis point cut, the personal income and expenditure data to date is confirmed.
The , which measures the dollar against a basket of currencies including the yen and euro, fell 0.17% to 100.43 after falling to 100.15, the lowest since July 20, 2023, with the euro at 0. fell 14% to $1,116.
The dollar is down about 0.2% this week, on pace for its fourth consecutive weekly decline and the ninth in the last 10. The euro is slightly lower this week.
Markets fully priced in a cut of at least 25 basis points at the Fed’s November meeting, with expectations for another 50 basis point cut, now up to 56.7% after the data, according to CME’s FedWatch Tool, compared to 49.9% before publication.
The yen strengthened after Japan’s Ishiba narrowly won the leadership battle of the country’s ruling Liberal Democratic Party.
Ishiba, a former defense minister, is a critic of past monetary stimulus and told Reuters the central bank was “on the right track” with rate hikes so far.
Markets had largely expected a victory last week for hardline nationalist Sanae Takaichi, an outspoken opponent of further rate hikes, pricing in loose monetary and fiscal policies and a weaker yen.
The Japanese yen was 1.88% stronger at 142.12 per dollar, after strengthening to 142.09, on track for its biggest daily percentage gain since August 2. This week, the dollar is down 1.25% against the yen, poised for its third weekly decline in four.
The euro fell 1.95% to 158.67 against the Japanese currency.
European data shows that inflation in France and Spain has risen less than expected, raising expectations for a European Central Bank rate cut in October to more than 90%.
China, meanwhile, launched a new round of stimulus measures on Friday after the country’s central bank cut interest rates and injected liquidity into the banking system in a bid to return economic growth to this year’s target of around 5%.
The dollar strengthened 0.11% to 6.979 against offshore.
Sterling fell 0.3% to $1.3375 and is up more than 0.4% this week, poised for a second straight weekly rise.
