Dollar weakens after inflation data, euro margins widen

SINGAPORE, May 10 (Reuters) – The dollar fell against other major currencies on Wednesday on news that U.S. inflation came in lower than expected, raising the prospect of the Federal Reserve pausing interest rate hikes.

Data from the US Labor Department showed April inflation fell to 4.9%, the smallest annual increase in two years. However, so-called core inflation has stuck at 5.5%, suggesting interest rates will need to remain high for some time to contain it.

“The US dollar eased modestly on news that core US CPI inflation was slightly lower in April. However, the data will provide some relief for Fed hawks and doves,” said Jane Foley, head of FX strategy at Rabobank London. .

“At 5.5%, core CPI inflation remains well above the 2% target and does little to change our household view that the central bank will not be able to cut interest rates this year.”

Following the data, the euro rose 0.24% to $1.0987 and sterling added 0.14% to $1.2640.

The Japanese yen was last seen at $134.50 as the dollar fell 0.52%.

Against a basket of currencies, the dollar index fell 0.2% to 101.38 at 101.21.

“There is continued anger in the market that the Fed hasn’t ended hiking rates,” said Adam Button, chief currency analyst at Forexlive.

“Even though the jobs inflation report came in slightly lower than expected, you could see a sigh of relief in the market. Selling the dollar very aggressively. Report.”

Economists polled by Reuters expected US consumer prices to rise 5.5% on a year-over-year basis in April.

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A stronger-than-expected reading would have proved a headache for the central bank, which last week signaled it was open to pausing its aggressive tightening cycle after delivering 10 consecutive rate hikes from March 2022.

Fed funds futures traders are pricing in a pause ahead of expected rate cuts in September. The central bank’s target range is 5% to 5.25%. ,

Reuters Graphics

Button believes it is too soon to start talking about rate cuts.

“I think the market is ready to move past the inflation story. But what the central bank needs to see is unemployment rising before it even thinks about cutting rates,” he said.

“Even if inflation falls to 2%, I don’t think the Fed will cut rates until a recession looks imminent or certain. So the growth part of the equation will be very important from here on out and the market. Feed.”

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Coin Auction Price 10:33AM (1433 GMT)

Ray Wei’s statement; Editing by Edwina Gibbs

Our Standards: Thomson Reuters Trust Principles.

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