By Karen Brettell
NEW YORK (Reuters) -The dollar fell on Wednesday after data showed consumer prices rose less in May than economists expected, but losses were limited after updated interest rate projections from Federal Reserve officials showed expectations of just one rate cut this year.
The headline consumer price index (CPI) was flat this month, below expectations for a 0.1% gain. Core prices rose 0.2%, lower than economists’ expectations for a 0.3% increase.
That reinforced expectations that the US central bank will make two interest rate cuts of 25 basis points this year, the first likely in September. But the Fed’s dot plot, which shows only one rate cut this year, has clouded that picture.
“Fed members were clearly unswayed by today’s CPI report, or were reluctant to change their forecast at the last minute,” said Adam Button, chief currency analyst at ForexLive in Toronto.
Fed policymakers had forecast three rate cuts this year as of March. The US central bank also postponed the start of interest rate cuts on Wednesday until perhaps December.
Fed Chairman Jerome Powell said after the meeting that the interest rate forecast is “fairly conservative” and may not be confirmed by future data, and that it is due for revision.
But he was not as forthcoming about the possibility of a rate cut in September as some investors expected.
“Many in the market thought Powell would deliver a rate cut in September, but instead he hasn’t offered any new hints about easing,” Button said. “That has led to purchases in US dollars.”
The stock was last down 0.5% on the day at 104.73, having previously fallen to 104.25. It hit a four-week high of 105.46 on Tuesday.
The dollar was also lowered as the benchmark briefly hit its lowest level since April 1, at 4.25%.
Fed Funds futures traders now estimate a 63% probability of a rate cut in September, up from more than 70% earlier on Wednesday, according to CME Group’s (NASDAQ:) FedWatch Tool.
Expectations for rate cuts were volatile last week, with traders lowering their bets on a September rate cut after Friday’s U.S. jobs report for May showed employers added more jobs than expected during the month. Wage inflation also rose more than expected.
Producer price data will be the next focus on Thursday for clues about the likely trajectory of the personal consumption expenditures (PCE) price index, the Fed’s preferred inflation indicator.
“A soft number there could shift risks to a low core PCE number at month end,” said Shaun Osborne, chief currency strategist at Scotiabank in Toronto.
The euro rose 0.63% to $1.0807 and rose to $1.0852. The price had fallen to $1.07195 on Tuesday, the lowest level since May 2.
The single currency is under pressure after far-right parties gained ground in the European Parliament elections, prompting French President Emmanuel Macron to call early elections in his country, to be held in two rounds on June 30 and July 7.
Macron reaffirmed on Wednesday that he would not resign if his camp does not win the elections. Marine Le Pen’s National Rally is France’s most popular party in the run-up to the parliamentary elections.
The Bank of Japan is also meeting this week and is widely expected to keep rates steady and consider whether to issue clearer guidance on how it plans to shrink its massive balance sheet.
The dollar fell 0.17% to 156.8 yen after trading at a one-week high of 157.40 on Tuesday.
The yen’s decline to a 34-year low of 160.245 per dollar in late April led to several rounds of official Japanese interventions totaling 9.79 trillion yen ($62 billion).
In cryptocurrencies, bitcoin gained 1.85% to $68,527.
