Core U.S. inflation slowed to an annualised 3.6% in April, according to Wednesday’s data
The dollar nursed losses and the yen rose on Thursday after U.S. core inflation eased to its slowest pace in three years, fuelling expectations for rate cuts in the world’s largest economy.
Core U.S. inflation slowed to an annualised 3.6% in April, according to Wednesday’s data. That was in line with market expectations but, along with flat retail sales numbers, suggested that conditions for rate cuts are falling into place.
The battered yen extended a rebound into a second session, rallying around 0.6% to its highest in two weeks at 153.6 to the dollar as the gap between U.S. and Japanese yields narrowed.
Other currencies hit multi-month peaks against the dollar before stabilising. The Australian dollar, which had soared 1% on Wednesday, reached a four-month peak at $0.6714 but then paused after an unexpected increase in Australian unemployment.
It was at $0.6685 as traders priced out any risk of a further rate hike in Australia.
The euro inched up to a two-month high at $1.0895. The New Zealand dollar also touched a two-month high at $0.6140. Sterling hit a one-month high at $1.27.
Analysts said any further selling of the dollar probably depended on how U.S. and other policymakers react to the data. If the Federal Reserve chooses to keep waiting, for instance, the BoJ may be hiking rates before U.S. rate cuts begin.
160 yen probably was the top for the dollar for the time being, if not for the rest of the year, according to Naka Matsuzawa, chief macro strategist at Nomura in Tokyo.
But for it to drop below 150, he said, markets would need to see a clearer signal from the Fed of actual rate cuts starting.
Softer-than-expected U.S. retail sales figures, which were flat last month instead of the 0.4% gain that economists had forecast, reinforced the impression the economy was slowing.
The data drove a rally in Treasuries and, along with selling in Japanese bonds, the gap between U.S. and Japanese 10-year yields has narrowed around 20 bps this week – on track for the biggest weekly move of the year so far.
China’s yuan rallied marginally to 7.2070 per dollar.
