Dollar holds gains as attention turns to spending data for Fed clues

TOKYO: The dollar held on to steep gains on Friday after better-than-forecast U.S. data dampened expectations for further easing by the Federal Reserve this year.

The dollar index , which measures the greenback against major peers, climbed 0.6% in the previous session after figures on U.S. economic growth, unemployment claims, durable goods, and wholesale inventories all beat expectations.

The yen traded at an eight-week low following a new raft of tariffs announced by U.S. President Donald Trump.

Attention now turns to Friday’s release of U.S. consumer spending data for signals of how urgently the economy needs additional stimulus from the Fed.

“Markets are reading through to this, and you can see a few basis points pared off of the lower rate forecasts,” said Gavin Friend, senior markets strategist at National Australia Bank. “I think when you do see numbers like we saw on Thursday, you say, well, where’s the fire?”

The dollar index was steady at 98.473, near a three-week high and on course for a 0.8% rise this week.

The greenback was flat at 149.81 yen after nearly breaking through the 150 mark for the first time since August 1.

The euro stood at $1.1665 after a 0.6% slide on Thursday.

Markets are now pricing in an 87.7% chance of a 25 basis point (bp) rate cut from the Fed in October, down from 90%-92% odds indicated on Wednesday.

The Commerce Department reported that U.S. gross domestic product rose by an upwardly revised rate of 3.8% from April through June, higher than the 3.3% initially reported. Economists polled by Reuters did not expect the rate to be revised.

Friday’s personal consumption expenditures (PCE) price index, the Fed’s preferred inflation measure, is expected to show a 0.3% month-on-month increase for August and a 2.7% year-on-year rise, according to a Reuters poll.

“At a time when Fed members are worried about elevated inflation, we think such a report will be encouraging,” said Bansi Madhavani, senior economist at ANZ. “So long as inflation impulse signals that this inflation trend is intact, we expect the Fed can continue to ease in gradual increments of 25 basis points.”

In Tokyo, where the central bank is on a tightening cycle, data showed core inflation in September in the capital stayed well above the central bank’s 2% target, keeping alive expectations of a near-term interest rate hike.

And just when bilateral trade deals had started to ease concerns about the impact of U.S. tariffs, Trump announced a broad range of new import duties, including 100% on branded drugs, 25% on heavy-duty trucks, and 50% on kitchen cabinets.