The toughened U.S. inflation data and the aggressive outlook of Federal Reserve regarding the interest rate cut have recovered the dollar, which gained some traction against other currencies later this month.
Meanwhile, the dollar was steady on Friday.
In June, the leading U.S. consumer price index gained 0.3% apart from food and energy components.
On Thursday, the data from the U.S. consumer price index showed it is the most massive increase since January 2018.
As the labor market remains strong despite the underlying inflation, the Fed’s July 30-31 meeting is expected by the limited financial market to be more aggressive on a 50-basis point cut.
The slowing economy seeks U.S. policymakers for support even when markets are still fully priced for a quarter percentage point cut.
Fed Chairman Jerome Powell revived the chance of a 50 basis-point cut in response to dovish comments. Meanwhile, after recovering from a low of 107.860 probes on Thursday, the dollar was moved at 108.390 yen.
A general manager at Gaitame.Com Research Institute said, “The dollar bounced back as the strong U.S. CPI got the market to question the Fed’s view on prices.”
The general manager also stated, “Expectations for a 50-basis point cut had risen after Powell’s comments but were lowered again by the CPI, until the Fed’s meeting later this month.”
Lastly, “the prospect of a 50-basis point cut will continue ebbing back and forth on each major data release.”
On Thursday, after studying much of its losses, the dollar index against a basket of six major currencies moved a little at 96.972. It has briefly curved to a six-day low of 96.795.
The U.S. economy was still under danger from disappointing factory activity, tame inflation, and a simmering Sino-U.S. trade war.
Besides, in a midweek congressional testimony when Powell said that the Fed was ready to “act as appropriate,” the index hit the low.
CPI: Gauge for Central Bank
A chief forex strategist at Mizuho Securities, Masafumi Yamamoto, said, a chance will be provided to measure how dovish the central bank is.
Comments in regards the measuring are by New York Fed President John Williams due on Monday and Chicago Fed President Charles Evans scheduled later on Friday.
Moreover, Masafumi Yamamoto said, “If these Fed officials are not as dovish as Powell, and if the New York Fed’s manufacturing survey on Monday proves stronger than forecast, they could show that the dollar weakening in response to Powell’s congressional testimony was overdone.”
Before the U.S. inflation data, the euro was robust at $1.1264 but off a high of $1.1285 mounted on Thursday.
In addition to the previous day’s modest gains, the Australian dollar pushed up 0.1% to $0.6985.
The direction of the dollar, which is often dictated by the U.S. Treasury 10-year yield after jumping eight basis points overnight, was at 2.125% on the robust U.S. inflation data and a weak 30-year bond auction.
Besides, earlier this week, as the Fed-driven momentum continues the U.S. dollar extended its losses.