The #usa_dollar fell on Thursday, except against the #yen, vacillating after data showed unexpected slowing in economic growth and an unwelcome inflation acceleration, potentially tying the #Federal Reserve’s hands on a pivot to easier interest rates.
While the #dollar was hardly shaken against the beleaguered yen, it otherwise only popped briefly after the Commerce Department reported that #usagross domestic product grew at a 1.6% annualized rate in the January-March period, slower than the 2.4% rate expected by economists polled by #Reuters.
The report also showed that underlying inflation as measured by the core personal consumption expenditures (#PCE) price index rose 3.7% in the first #quarter, eclipsing forecasts for a 3.4% #rise.
The inflation surprise puts an even greater-than-usual focus on the release on Friday of PCE price index data for March. The #PCE index, and core PCE index factoring out food and energy prices are among the Fed’s most important gauges of #price behavior. Inflation remains stubbornly above the #USA #central_bank’s 2% inflation target.
“The market reaction to the (#GDP) data tells all you need to know about what investors are focused on and it’s mostly inflation and not growth,” said #Boris #Kovacevic, #global #market #strategist at #Convera in #Vienna, #Austria.
“The print on the 3.7% PCE does suggest that tomorrow’s PCE number will be higher.”
The yen, meanwhile, hit a fresh 34-year low versus the dollar and a 16-year low against the euro on Thursday as investors expect a Bank of Japan (BOJ) policy meeting that ends on Friday to not be hawkish enough to support the Japanese currency.
The #dollar_index, a measure of the U.S. currency’s value against six rivals, reversed a small overnight loss after the data caused benchmark Treasury yields to rise, topping at 106.00. It was last at 105.60, off 0.21%.
Conversely, the #greenback fell as low as 155.31 yen after the GDP data, but quickly reversed to stand 0.19% higher at 155.63.
It peaked at a 34-year high of 155.75 yen, while the #euro/#yen pairing surged to 167.025, a 16-year peak.
#Investors #guessed the #dollar/#yen 155 level would be a line in the sand for #Japanese authorities, above which the #BOJ could intervene to shore up the currency. But it’s a moving target and the market has been on high alert for such #central #bank action since the yen fell below 152 per #dollar about two weeks ago.
“I think that #Japanese officials have been very clear that they are not really looking at a particular level,” said #Marc_Chandler chief market strategist, at #Bannockburn #Global Forex in New York.
“We should expect a hawkish hold from the BOJ where they hold policy and they talk about how the weakness of the yen could contribute to inflation and which they’d respond to.”
The #euro went up 0.26% to $1.0725. Sterling strengthened 0.35% to $1.2504.
Following the #GDP data, the #usa_rate futures market was pricing in a 58% chance of a Fed rate cut in September, down from 70% late on Wednesday, according to CME Group’s (NASDAQ:#CME) FedWatch tool.
Rate futures traders on Thursday were factoring in a 68% chance that the Fed’s first rate cut since 2020 could happen at its meeting in November.
In #cryptocurrencies, #bitcoin gained 0.80% at $64,492.00. #Ethereum rose 0.94% at $3158.95.
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