The dollar index gained 0.09% to 104.88 after jumping to a two-week high on Thursday
The dollar firmed on Friday as traders await key inflation data after a downward revision to first-quarter U.S. economic growth suggested the Fed could still be on track to cut interest rates this year.
Meanwhile, the euro dropped ahead of euro zone inflation data due at 0900 GMT, which could firm expectations for an European Central Bank (ECB) rate cut next week.
Investors are awaiting the release of the Fed’s preferred measure of inflation, the PCE price index, due at 1230 GMT, for further indications on how the central bank might proceed.
The data-dependent Fed means that the April core Personal Consumption Expenditures deflator will be an important market mover should it deviate away from the consensus 0.3% MoM figure, according to Chris Turner, head of markets at ING.
Official data showed on Thursday that the U.S. economy grew at an annualised rate of 1.3% from January through March, down from the previous estimate of 1.6% after downward revisions to consumer spending.
The revision keeps the Federal Reserve on track to potentially lower rates at least once this year. The central bank will look closely at inflation data before it feels comfortable enough to begin cutting, according to analysts.
According to Jim Reid, strategist at Deutsche Bank, U.S. PCE data “still gets a lot of attention because it’s what the Fed officially targets”.
Markets currently price in a 45% probability of a first rate cut in September, as per the CME Group’s FedWatch Tool.
The dollar index gained 0.09% to 104.88 after jumping to a two-week high on Thursday.
Earlier this month, weaker U.S. CPI data revived rate cut expectations for this year, weakening the dollar across the board and setting it on track for its first monthly losses in 2024.
But expectations for rate cuts this year have wavered amid signs of sticky inflation, most recently with a surprise rise in consumer sentiment, data showed on Tuesday.
