The dollar is declining to head lower for the second week in a row, and data indicates an improvement in inflation and consumer spending.
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For the second week, the dollar is declining as dealers reduce interest rate hike expectations
The dollar fell on Friday, heading lower for the second week in a row after traders cut their expectations for a US interest rate hike, and with improved inflation and consumer spending data.
The dollar index, which measures the performance of the US currency against a basket of 6 major currencies, fell to its lowest level since April 25 at 101.43. On a weekly basis, the index fell 1.3%, following a 1.45% decline last week.
The dollar fell 0.147% to 101.57 by 14:45 GMT. It peaked in nearly two decades, hitting 105 earlier this month but has since fallen back.
‘The dollar is losing steam’
In this context, Joe Manimbo, chief market analyst at Western Union Business Solutions, said, “The dollar is losing ground as the view that the Federal Reserve will stop raising interest rates in the fall is getting stronger.”
The minutes of the Federal Reserve’s meeting in May this week showed that most participants believed that a 50 basis point increase would be appropriate at policy meetings in June and July.
But many believed that the early and large increases would allow some pause later in the year to assess whether tighter monetary policy is helping to tame inflation.
A decline in inflation rates
Friday’s data showed that although inflation continued to rise in April, it rose less than in the past few months.
The personal consumption expenditures price index rose 0.2%, the smallest increase since November 2020, after rising 0.9% last March. For the 12 months to April, the PCE price index advanced 6.3%, after jumping 6.6% in March.
US Treasury yields fell on Friday, but rose rapidly during the session after inflation figures emerged in April, which fueled hopes that the worst of price increases are over.
A separate report showed that US consumer spending rose more-than-expected last month as households increased their purchases of goods and services.
The main beneficiary of the dollar’s decline is the euro, but this momentum has also stalled, as investors believe that many of the expected rate increases from the European Central Bank have already been taken into account at current levels.
The euro rose 0.06% to $1.07395, after earlier climbing to its highest level in a month. The British pound rose 0.31% to $1.2646.
The risk-sensitive Australian dollar rose 0.89% to $0.7163, while the New Zealand dollar jumped 1.08% to $0.6548.
The digital bitcoin did not benefit from the increased appetite for risk, and it fell 0.64% to about $ 28,997, continuing its gradual decline this week from the level of $ 30 thousand.