Market News
Dollar retreats as US inflation data eases rate hike expectations - REUTERS
By Chuck Mikolajczak
NEW YORK, June 25 (Reuters) — The U.S. dollar weakened on Thursday, ending a three-session winning streak after a series of U.S. economic reports, including the latest inflation data, reduced expectations that the Federal Reserve will raise interest rates aggressively this year.
Although inflation remained elevated, the data largely matched market forecasts, prompting investors to scale back expectations of near-term monetary tightening.
Inflation Remains High but Meets Expectations
The U.S. Commerce Department reported that the Personal Consumption Expenditures (PCE) Price Index—the Federal Reserve's preferred measure of inflation—rose 4.1% year-on-year in May.
The reading marked:
- The highest annual inflation rate since April 2023.
- The first reading above 4.0% in more than two years.
However, the figure was in line with economists' expectations.
On a monthly basis, the PCE price index increased 0.4>#/strong###, slightly below the 0.5>#/strong### forecast.
The softer monthly reading helped reassure investors that inflation, while still elevated, may not be accelerating beyond expectations.
Consumer Spending Remains Strong
Consumer spending continued to demonstrate resilience.
Household spending increased 0.7% in May, accelerating from 0.4% in April and exceeding economists' expectations of 0.6>#/strong###.
The data suggest that U.S. consumers remain confident despite higher prices and elevated borrowing costs.
Brian Jacobsen, Chief Economist at Annex Wealth Management, said:
"The worst of inflation and consumer angst may be mostly behind us."
He added that inflation expectations are heavily influenced by fuel prices.
"As long as gasoline prices trend lower, inflation expectations will likely follow suit."
Dollar Pulls Back
Following the data release, the U.S. Dollar Index (DXY) fell 0.19>#/strong### to 101.41, putting it on course for its largest one-day decline in two weeks.
The euro gained 0.16>#/strong### to $1.1375 against the dollar.
The pullback followed a strong rally in the U.S. currency over recent sessions, during which the dollar reached its highest level in 13 months amid growing expectations of higher U.S. interest rates.
