NEW YORK: The dollar index was lower on Friday following two straight days of gains, after economic data showed a cooling in consumer spending, raising some doubt about the potential aggressiveness of the Federal Reserve in fighting inflation.
US Treasury yields were also mostly lower after the data.
The Commerce Department said consumer spending ticked up 0.1% in May while data for the prior month was revised to show spending accelerated by 0.6% versus the previously reported 0.8%. The personal consumption expenditures (PCE) gained 0.1% for the month after an 0.4% rise in April while advancing 3.8% on an annual basis, slowing from a revised 4.3% the prior month.
But the PCE gauges were still well above the Fed’s 2% inflation target.
“Spending was weak, especially in inflation-adjusted terms. Goods spending fell and even services spending looks to be sputtering,” said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.
“Inflation is drifting lower. The off-ramp to 2% inflation is a long one, though.” The dollar index fell 0.426% to 102.880 and was virtually unchanged on the week.
The index had risen 0.82% over the prior two sessions after comments from Fed Chair Jerome Powell and solid economic data heightened market expectations the US central bank would raise interest rates two more times this year, while reducing the belief that a rate cut could be in the cards by the end of the year.
Expectations for a 25 basis points hike at the Fed’s July meeting dipped slightly, with markets now pricing in an 84.3% chance of a hike, down slightly from the 89.3% on Thursday, according to CME’s FedWatch Tool.
Chicago Federal Reserve Bank President Austan Goolsbee said Fed officials will be parsing “a lot of data” leading up to the Fed’s next meeting to assess whether borrowing costs need to be pushed up higher to tamp down inflation.
The dollar index is up 0.3% for the quarter and is poised to snap a streak of back-to-back quarterly declines. For the first half, the greenback is off 0.6%.
The Japanese yen strengthened 0.35% and was on track to snap a three-day run of weakening against the greenback at 144.26 per dollar, after briefly crossing the 145 mark with a fresh seven-month high of 145.07.
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