SINGAPORE: The US dollar languished near a two-month low against major peers on Friday while the euro flirted with a one-year peak, as traders ramped up expectations of an imminent end to the US Federal Reserve’s rate-hike cycle on signs of cooling inflation.
Data from the US Labor Department on Thursday showed the producer price index (PPI) fell by the most in nearly three years last month, coming a day after inflation data pointed to moderation in consumer prices.
The greenback took another leg down following Thursday’s data release, with the dollar index sinking to a two-month low of 100.84 in the previous session.
It last stood at 100.95 in early Asian trade, and was headed for a weekly decline of more than 1%, its steepest since January. Meanwhile, the euro rose 0.07% to $1.1055, after surging to a one-year top of $1.1068 on Thursday.
The British pound was similarly perched near a 10-month high and last bought $1.2526. “The easiest way to express a dollar negative view has been with the euro,” said Ray Attrill, head of FX strategy at National Australia Bank.
“The significant downside surprise in US PPI has made people a bit more convinced of the view that the Fed will (soon) be done and (strengthened) conviction that inflation will allow the Fed to be cutting rates before the end of the year,” said Attrill.
Money markets are pricing in a 69% chance the Fed will raise interest rates by 25 basis points next month, though a series of cuts are also being priced in from July through to the end of the year, with rates seen just above 4.3% in December.
Dollar slips ahead of US inflation data, still hits month high against yen
Adding to the hope that global inflationary pressure is waning was an unexpected surge in Chinese exports, which in March shot up 14.8% from the same month a year earlier, stunning economists who predicted a 7.0% fall in a Reuters poll.
The upbeat Chinese data, alongside a robust March employment report in Australia, kept the Australian dollar supported at around $0.6788 on Friday, having surged 1.3% in the previous session on the back of the data releases.
The Australian and New Zealand dollars are often used as liquid proxies for China’s yuan. “It was almost like a perfect positive storm for the Aussie,” said Attrill. “Starting with the employment numbers and the China trade numbers which looked exceptionally good.
“You layer on top of that, the dollar weakness from the data last night and positive risk sentiment, and it was a (raft) of good news for the Aussie.”
The New Zealand dollar similarly gained 0.13% to $0.6305 in Asia trade, after jumping 1.3% on Thursday.
Elsewhere in Asia, Japan’s yen rose marginally to 132.44 per dollar, while the offshore yuan edged about 0.1% higher to 6.8635 per dollar.
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