U.S. Dollar Dropped Last Week On Softer Inflation
May 20 2024 - 5:52AM
RTTF2
An expected, softening in inflation readings in the U.S.
triggered the U.S. dollar's decline against major currencies during
the week ended May 17.
The U.S. dollar slipped against the euro, the British pound, the
Australian dollar as well as the Japanese yen. The six-currency
Dollar Index also recorded a major decline.
The Dollar Index or DXY which measures the Dollar's strength
against a basket of six currencies viz the euro, the British pound,
the Japanese yen, the Canadian dollar, the Swedish kroner and the
Swiss franc declined 0.78 percent during the week ended May 17.
From the level of 105.31 as on May 10, the DXY slipped to 104.49 in
a week's time.
The DXY touched the week's high of 105.46 on Tuesday before the
release of the CPI readings and the week's low of 104.08 on
Thursday after the release of the inflation update. Data released
on Wednesday morning revealed a cooling in consumer price inflation
in the U.S. in the month of April, almost along expected lines.
Headline annual inflation cooled as expected to 3.4 percent from
3.5 percent in the previous month. The core component also eased as
expected to 3.6 percent, the lowest reading since April 2021 from
3.8 percent in March. Month-on-month inflation which was seen
steady at 0.4 percent dropped more than expected to 0.3 percent.
The core-component thereof, which excludes volatile items such as
food and energy also eased as expected to 0.3 percent from 0.4
percent in March.
Despite mixed economic readings released during the week as well
as hawkish commentary from Fed officials, the greenback tumbled
during the past week. Data released on Tuesday by the U.S. Bureau
of Labor Statistics showed month-on-month producer price inflation
rising 0.5 percent in April versus the downwardly revised decline
of 0.1 percent in March and market expectations of 0.3 percent.
Also, data released by the U.S. Department of Labor on Thursday
showed the number of people claiming unemployment benefits in the
U.S. dropping to 222 thousand in the week ended May 11 versus
market expectations of 220 thousand. Fed Chair Jerome Powell had in
his speech on Tuesday also lamented the declining confidence about
inflation falling as expected. The EUR/USD pair rallied 0.93
percent during the week ended May 17, helped by a softer Dollar
attributed to renewed Fed rate cut expectations. The euro which was
at $1.0769 on May 10 strengthened to $1.0869 by May 17. The pair
ranged between 1.0766 and 1.0896 during the week. Comments by ECB
officials advising caution on rate cuts beyond June provided
support for the euro.
Stronger-than-expected GDP growth in the U.K. in the first
quarter that triggered doubts about the timing of rate cuts by the
Bank of England helped the pound sterling jump more than 1.4
percent against the greenback during the week spanning May 11 to
18. The GBP/USD pair which was at 1.2521 on May 10 closed trading
on the succeeding Friday at 1.2699. The pair ranged between the low
of 1.2508 recorded on Tuesday and the high of 1.2713 recorded on
Friday. The jump in the unemployment rate to 4.3 percent from 4.2
percent in the previous period, however capped gains.
The CPI-induced weakness in the U.S. dollar and a
higher-than-expected increase in employment in Australia helped the
AUD/USD pair record a weekly gain of 1.4 percent on May 17. The
pair rallied from 0.6603 on May 10 to 0.6693 on May 17. The weekly
trading ranged between the low of 0.6579 recorded on Tuesday and
the high of 0.6715 recorded on Thursday. Gains were however capped
by an unexpected increase in the unemployment rate.
Amidst a profound weakness in the U.S. dollar on hopes of an
imminent Fed rate cut, the Japanese yen edged up against the U.S.
Dollar during the week ended May 17. Though the USD/JPY pair ranged
between 156.77 recorded on Tuesday and 153.60 touched on Thursday,
the weekly result was a flat ending at 155.65 versus 155.72 a week
earlier. Japan's GDP which shrank by 0.5 percent in the first
quarter, more than what the markets had expected, added to concerns
about the headroom available to the Bank of Japan to raise interest
rates, limiting the yen's advance.
On the currency markets' horizon this week are data releases
ranging from Australia's Consumer Confidence reading and minutes of
Reserve Bank of Australia, trade and inflation updates from Japan,
retail sales and inflation updates from U.K. manufacturing PMI from
Germany as well as durable goods orders from the U.S. However, the
market spotlight is invariably on the FOMC minutes due from the
U.S. on Wednesday. The geopolitical situation in the Middle East is
also on the currency market's radar.
Amidst the anticipation and the uncertainty, the Dollar Index
has increased to 104.60 from the level of 104.49 on Friday. The
EUR/USD pair has slipped to 1.0863 whereas the GBP/USD pair has
edged up to 1.2700. The AUD/USD pair has declined to 0.6673. The
USD/JPY pair has however rallied to 156.17.