USD Higher After US Inflation Rises

The dollar rebounded from a three-week low against the yen and a 10-day trough against a currency basket on Friday, bolstered by data showing inflation starting to creep into the U.S. economy, a development that should keep the Federal Reserve on track to lift interest rates this year.

The inflation data, however, did not change the market’s expectation for the timing of a Fed rate hike, especially after recent soft U.S. economic figures. Analysts are still pricing in just one rate increase this year, sometime late in the fourth quarter.

U.S. consumer prices rose 0.2 percent in March, gaining for a second straight month, propelled by higher costs for gasoline and housing. Closely watched core consumer prices showed a rise of 1.8 percent year-on-year, inching closer to the Fed’s 2.0 percent target.

“We had a stronger core CPI, which suggests that inflation is starting to firm as the Fed expected, and that’s positive for the dollar,” said Vassili Serebriakov, currency strategist at BNP Paribas.

“But this doesn’t change the expected timing in interest rates. We still don’t think the Fed will raise rates in June.”

In midmorning trading, the dollar was up 0.2 percent against the yen at 119.20 yen JPY=, after earlier falling to a three-week low.

The euro, meanwhile, changed course versus the dollar, slipping 0.2 percent to $1.0743 EUR=. That pushed the dollar index higher to 97.756 .DXY, up 0.4 percent. The index earlier fell to 97.001, its lowest since April 7.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza