The dollar weakens and the euro rises after the inflation data

SINGAPORE (Reuters) – The dollar fell against other major currencies on Wednesday on news that inflation in the United States slowed more than expected, raising the possibility that the Federal Reserve will stop raising interest rates.

US Labor Department data showed that inflation in April eased to 4.9%, the smallest year-on-year increase in two years. However, the so-called core inflation held steady at 5.5%, which indicates that interest rates may need to stay high for some time to tame them.

said Jane Foley, Head of Foreign Exchange Strategy at Rabobank London.

“At 5.5%, core CPI inflation is well above the 2% target and does little to change our view that the Fed will not be able to cut interest rates this year.”

After the data, the euro rose 0.24% to $1.0987 while the British pound rose 0.14% to $1.2640.

The Japanese yen was last seen at $134.50 as the dollar fell 0.52%.

Against a basket of currencies, the dollar index fell 0.2% to 101.38, after hitting a low of 101.21.

“There is a constant concern in the market that the Federal Reserve is not done raising interest rates,” said Adam Patton, chief currency analyst at Forexlive.

“Although the employment inflation report was a little lower than expected, you can see a sigh of relief in the market. That means the dollar has been sold off fairly aggressively. So… I think the market was holding its breath ahead of this report.”

Economists polled by Reuters expected core consumer prices in the United States to rise 5.5% year-on-year in April.

The stronger-than-expected reading would have proved a concern for the Federal Reserve, which last week signaled it was open to pausing the aggressive tightening cycle after delivering 10 consecutive rate hikes since March 2022.

Federal Reserve fund futures traders are pricing in a pause ahead of the expected rate cuts in September. The Fed’s target range stands at 5% to 5.25%. And

Patton thinks it’s too early to start talking about rate cuts.

“I think the market is ready to move past the inflation narrative. But what the Fed needs to see is higher unemployment before they even think about cutting rates,” he said.

“I think even if inflation goes down to 2%, the Fed won’t cut rates until a recession seems imminent or certain. So the growth part of the equation is going to be more important than here for the market and for fueling it.”

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The coin bid prices at 10:33 AM (1433 GMT).

Reporting by Ray Wei. Editing by Edwina Gibbs

Our standards: Thomson Reuters Trust Principles.