(New York) The dollar retreated on Friday against several major currencies, handicapped by a price index which confirms the deceleration of inflation in the United States and removes some pressure from the American central bank (Fed) to raise its rates .
Around 4:20 p.m. (Eastern time), the greenback returned 0.40% to the single currency, at 1.0909 dollars for one euro.
Earlier, it had risen to its highest point in two weeks, at $1.0835.
But the “greenback”, one of the nicknames of the dollar, retreated after the publication of several indicators which “highlighted the irregularity of the (American) economy, which suggests that the Fed will have less wiggle room (than expected) to raise rates,” Convera’s Joe Manimbo reasoned in a note.
Inflation slowed to 3.8% year on year in May, from 4.3% in April, according to the PCE index, favored by the Fed, while consumption stalled (+0.1% over one month ), after a dynamic month of April (+0.6%).
In addition, the activity index for the Chicago area came out below expectations in June, recording an eighth consecutive month of contraction.
For Marc Chandler, of Bannockburn Global Forex, the rebound of several currencies against the dollar, in particular the dollar and the pound, is explained by the approach of the end of the quarter, a period conducive to rebalancing portfolios.
“I do not think that we should draw conclusions from these movements,” insisted the analyst, especially since the market is already turned towards the holiday weekend of July 4, National Day of American Independence, which should result in low trading volume on Monday and Tuesday.
“The picture will be clearer in a few days,” said Marc Chandler, “but for me, the dollar remains on the upside.”
Although operators give a substantial probability to the hypothesis of two additional rate hikes by the Fed by the end of the year, the scenario nevertheless remains a minority one.
The market therefore still doubts the speech of the members of the Fed who, its president Jerome Powell in the lead, say they are considering at least two new increases by 2024.
“A strong jobs report would be a step in that direction,” which would bring Wall Street’s expectations more in line with those of the Federal Reserve. This report is expected next Friday.
The next major indicator will be the CPI price index on July 12, which will be the last to benefit from a favorable comparison effect, in particular due to the drop in oil prices from June 2022, according to the analyst.
Inflation should then rise or stabilize in the following months, which could lead traders to give more credibility to the Fed’s offensive rhetoric, Marc Chandler predicts, and benefit the dollar.