Citizens’ Reduced Purchasing Power Weakens the Dollar

The dollar index was lower on Friday (June 30th) after two consecutive days of gains, and economic data showed a reduction in spending, raising doubts about the potential aggressiveness of the US Federal Reserve (Fed) in fighting inflation. The results from the Department of the United States of America were also lower.

The Commerce Ministry reported that consumption rose by 0.1 per cent in May, with the previous month’s data revised to show an acceleration of 0.6 per cent compared to the previously reported 0.8 per cent.

Personal consumption expenditures (PCE) increased by 0.1 per cent for the month, following a 0.4 per cent rise in April. On a year-over-year basis, PCE rose by 3.8 per cent, slowing down from a revised 4.3 per cent in the previous month. However, PCE indicators still remained well above the Fed’s two per cent inflation target, according to Reuters.

The dollar index fell by 0.426 per cent to 102.880 and remained practically unchanged throughout the week. The index rose by 0.82 per cent compared to the previous two sessions following comments from Fed President Jerome Powell and solid economic data.

The dollar index is up by 0.3 per cent this quarter and is poised to end a streak of consecutive quarterly declines. For the first half, the dollar fell by 0.6 per cent.

The Japanese yen gained 0.35 per cent and was on track to end a three-day losing streak against the dollar at 144.26 per dollar. The dollar has appreciated by nearly nine per cent against the yen this quarter.

Inflation in the Eurozone is Falling

In contrast, eurozone inflation data has fallen for a third consecutive month. Still, core inflation showed a small decline that is unlikely to prevent the European Central Bank from raising rates at its July meeting. The euro rose by 0.43 per cent to US$1.0911, while the pound last traded at $1.2695, up 0.66 per cent on the day.

The figures indicate that Britain’s economy grew by just 0.1 per cent in the first quarter, as inflation reduced household disposable income.