© Reuters.
By Peter Nurse
Investing.com – Updated at 15:15 GMT
A senior Federal Reserve official said today, Friday, that there has been little progress in controlling inflation, indicating that more interest rate increases are needed to bring it under control.
Fed board member Christopher Waller did not specify how many more increases he would support, but said in written remarks that inflation “remains too high and therefore the Fed’s mission is not done.”
Interest expectations indicate that the Fed will raise interest rates by 25 basis points in May, while expectations according to the exchanges indicate that interest rates will rise again in June.
The US dollar index rose by 0.47% to the level of 101.715.
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The US dollar index rose strongly after the release of data that showed a strong decline more than expected.
The US dollar index is now at 100.905, after falling to a one-year low earlier.
The US dollar fell to a one-year low in early European trade on Friday on mounting expectations that softer-than-expected inflation data will lead to an early end to the Federal Reserve’s rate-tightening cycle.
At 02:00 ET (06:00 GMT), the US currency, which tracks against a basket of six other currencies, was trading down 0.2% at 100.515, and trading at levels last seen in April last year.
The index was on track for a weekly decline of more than 1%, its largest level since January.
These dollar losses followed the release in the US, which was down 0.5% from the previous month, the largest drop since the start of the pandemic.
The producer price index slowed year-on-year, rising 2.7% from a year ago, the smallest gain in more than two years. Excluding volatile food and energy components, the so-called fell 0.1% from February and rose 3.4% from a year ago.
These figures came just one day after recording the lowest annual increase since May 2021.
It is still widely expected to raise interest rates again next month, perhaps by only 25 basis points, but expectations are growing that the US central bank will cut rates before the end of this year.
“Investors seem to be very welcoming of the Fed’s upcoming easing cycle (after a recent increase in May), convinced that the dollar will weaken, and are looking for an opportunity,” ING analysts said in a note.
Governing Council member Pierre Wench said on Thursday that the European Central Bank needed to continue to raise interest rates, and that the market’s expectation of another 75 basis points of increases was “reasonable”, but expectations for a rate cut at the start of the year were not.
“I think the increase in May will be around 25 or 50 basis points,” Winch said. “If there is another bullish surprise in core inflation, and the ECB (quarterly) lending survey isn’t too bad, the increase could be 50 basis points.”
There is more inflation data to study on Friday, with consumer prices for March set to start from and.
The currency pair rose 0.1% to 1.2535, hitting a 10-month high, as it saw rates hiked again in May, with UK inflation remaining in double digits after surprisingly accelerating to 10.4% in February.
ING added: “The dollar’s weakness news keeps GBPUSD bid near 1.2500 and the pressure seems to be building for a move to 1.2650/2750 – again driven by the dollar.”
Elsewhere, it traded largely flat at 0.6782, but the Aussie was poised for a 1.7% jump this week as a significantly stronger-than-expected employment report raised bets that the Reserve Bank may hold on so far } to the top.
The currency pair fell 0.1% to 132.50, while the pair fell 0.5% to 6.8382, with the yuan supported by People’s Bank of China Governor Yi Gang who reaffirmed the government’s target for 5% GDP for 2023.
