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US Dollar Rises After Inflation Data Are Released, Raising Expectations for Rate Increases

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The Federal Reserve is still on track to raise interest rates at its monetary policy meeting next week, and the U.S. dollar increased on Friday as a result of statistics showing that inflation increased in March even if it did so more slowly than in February.

As a result of the Bank of Japan's announcement that it would maintain ultra-low interest rates as anticipated and that its policy on yield curve control (YCC) would not change, the yen dropped across the board.

The value of the yen fell to its lowest level against the euro and the dollar since September 2008, respectively.

The euro recently increased by 1.5% to 150 yen. Europe's common currency increased 1.8% during the week.

While the dollar posted a weekly gain of 1.6%, it last traded 1.7% higher at 136.235 yen, marking its best weekly performance since late February.

The dollar index, which compares the value of the dollar to six other major currencies, increased 0.2% to 101.65.

The personal consumption expenditures (PCE) price index increased by 0.1% in March after increasing by 0.3% in February, according to statistics released on Friday. The PCE price index rose 4.2% over the course of the previous 12 months, after a 5.1% gain in February.

After rising at the same pace in February, the PCE price index edged up 0.3% when the volatile food and energy components were excluded. After increasing 4.7% in February, the so-called core PCE price index increased 4.6% on an annual basis in March. For its 2% inflation target, the Fed keeps an eye on the PCE price indices.

According to Joseph Lavorgna, chief U.S. economist at SMBC Nikko Securities in New York, “you probably need a much bigger slowing in the growth rate to get the Fed comfortable that it's succeeded in its mission; it's not there yet.” It doesn't alter the outlook (for decision-makers the following week).

The rate futures market has placed in a 90% possibility of a 25 basis-point raise next week in response to the inflation report.

The final University of Michigan consumer confidence measure for April, which increased from a three-month low of 62 in March, was reported in a separate study on Friday, adding to dollar gains. The one-year inflation prediction for American consumers increased from 3.6 in March to 4.6 this month, which supported expectations for rate hikes and strengthened the currency.

In the meanwhile, the euro's value versus the dollar fell by 0.1% to $1.1017.

The euro zone's economic statistics revealed uneven growth and inflation, which made the extent of the ECB's anticipated interest rate increase next week more questionable.

According to preliminary figures, the euro zone's gross domestic product increased by 0.1% in the first quarter, which was less than the 0.2% forecast in a Reuters poll.

The single European currency initially fell considerably more throughout the day, but losses were reduced when traders sold the yen relative to the euro. The euro/dollar cross was affected by it.

According to Jonathan Petersen, senior market economist at Capital Economics, “we think the balance of probabilities is gradually shifting in favor of the dollar.”

“The 'goldilocks' regime of stronger activity data outside of the U.S. seems to be fading, and once the global growth picture starts to deteriorate more significantly in coming months, we anticipate the dollar benefiting from safe-haven demand.”

Exchange rates as of 3:26 PM (19:26 GMT)

Description RIC Change in YTD Pct Last U.S. Close Low Bid High Bid

Previous Change

Session

Dollar index 101.6400 101.4500 +0.20% -1.788% +102.1700 +101.4200

Euro/Dollar $1.1018 $1.1029 -0.10% +2.83% +$1.1045 +$1.0963

Dollar/Yen 136.2350 134.0100 +1.66% +3.91% +136.5600 +133.3600

Euro/Yen 150.00 147.77 +1.51% +6.91% +150.4300 +147.2300

Dollar/Swiss 0.8936 0.8944 -0.07% -3.34% +0.8975 +0.8896

Sterling/Dollar $1.2563 $1.2500 +0.50% +3.88% +$1.2584 +$1.2447

Dollar/Canadian 1.3547 1.3591 -0.32% -0.01% +1.3668 +1.3536

Aussie/Dollar $0.6615 $0.6630 -0.22% -2.95% +$0.6642 +$0.6573

Euro/Swiss 0.9846 0.9862 -0.16% -0.50% +0.9868 +0.9816

Euro/Sterling 0.8769 0.8824 -0.62% -0.85% +0.8839 +0.8768

NZ $0.6184 $0.6148 +0.59% -2.61% +$0.6187 +$0.6124

Dollar/Dollar

Dollar/Norway 10.6650 10.6210 +0.44% +8.70% +10.7690 +10.6290

Euro/Norway 11.7497 11.7106 +0.33% +11.97% +11.8338 +11.6981

Dollar/Sweden 10.2563 10.2857 -0.46% -1.46% +10.3522 +10.2405

Euro/Sweden 11.3011 11.3530 -0.46% +1.36% +11.3720 +11.3010


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