Inflation concerns and dollar’s path to monthly loss

On Friday, the Federal Reserve’s aggressive rate-hike cycle appeared to be coming to an end. At such a pace, it puts pressure on the US dollar to suffer its second consecutive monthly loss. In contrast, the yen held steady near a one-week high ahead of a crucial central bank decision.

Asia is paying close attention to the Bank of Japan‘s (BOJ) decision on monetary policy this Friday. New BOJ Governor Kazuo Ueda is expecting to maintain an ultra-loose monetary policy at his first policy meeting.

Investors will keenly monitor any changes to the forward guidance. Besides, all the attention is on Ueda’s tone.

The Japanese yen gained more than 0.1% against the British pound. It was nearly 0.1% higher at 133.84 per US dollar before the announcement.

Tina Teng, a market analyst at CMC Markets said she does not anticipate the BOJ to adjust its monetary policy this time. The recently published Tokyo CPI was higher than what the public expected. The BOJ seems to be on its way to acting soon because of the pressure this puts on them.

Tokyo’s core consumer prices increased by 3.5% in April. Friday’s official statistics revealed a comparison to a year earlier. This increase exceeded market expectations. Moreover, it indicates growing inflationary pressure in the third-largest economy in the world.

The US dollar fell versus most of its main counterparts in the wider currency market. However, the world’s largest economy’s inflation is still sticky. It means, that there are still limits to its losses. This information reinforced expectations for a 25-basis-point rate hike at the FOMC meeting next week.

Stable expansion despite inflation worries

The US dollar index recently traded at 101.45 against a basket of currencies. It was on track to lose more than 1% on the month after falling roughly 2.3% in March.

Sterling fell 0.06% to $1.2492.

According to data released on Thursday, the first quarter’s US economic growth was slower than we anticipated. However, consumer spending increased faster than inflation.

The price index rose at a rate of 3.6% in the fourth quarter. The demand for gross domestic purchases, a gauge of economic inflation, increased at a rate of 3.8%. Moreover, the core PCE price index increased at a rate of 4.9% after rising at a rate of 4.4% in the previous quarter.

Additionally, the euro maintained its one-year high and recently traded at $1.1033. It was aiming for a growth of nearly 2% each month.

Expectations that the European Central Bank will continue to raise interest rates. On the contrary, a dovish repricing of its American equivalent has boosted the common currency.