© Reuters. FILE PHOTO: U.S. dollar banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration
By Rae Wee
SINGAPORE (Reuters) – The dollar languished near its lowest level in more than four months on Friday, ahead of a reading of a key gauge of U.S. inflation expected later in the day, which will provide further clarity on the margin of maneuver available to the Federal Reserve to reduce interest rates. prices next year.
The greenback hit a five-month low against the New Zealand dollar and a three-week low against the euro in early Asian trading, resuming its decline after a sudden bout of risk aversion on Wednesday in New York led to a massive sell-off in US stocks. and a rise in the dollar.
The euro was up 0.03% at $0.6296 after hitting a high of $0.6298, while the euro peaked at $1.10125.
Attention now turns to Friday’s U.S. core personal consumption expenditures (PCE) – the Fed’s preferred measure of underlying inflation – for clues on how much inflation is slowing in the largest economy in the world.
The core PCE price index is expected to have increased 3.3% on an annual basis, up from 3.5% in October.
“The distribution of US inflation is now seen as asymmetric and one-sided, with a high probability of lower levels,” said Chris Weston, head of research at Pepperstone.
“As a result, the Fed has increased its flexibility to ease policy if the need arises, and even though Fed officials say their work is not done and the latest attempt to reach its 2% inflation target is the hard part, they can accelerate the cuts. much more effective when the core PCE is at 3.5% and falling.”
Against a basket of currencies, the greenback was last at 101.76, close to a more than four-month low of 101.72 reached during the previous session.
The Fed was on track for a weekly loss of around 0.8% and appeared poised to extend last week’s 1.3% cut, after the Fed left the door open for rate cuts l next year during its last political meeting for 2023.
The Australian dollar fell 0.09% to $0.6797, while remaining close to its five-month high of $0.68035 hit on Thursday.
Sterling was little changed at $1.26905 and headed for a marginal weekly gain, pressured by UK inflation data released this week that fell well short of expectations.
“As inflation moves closer to its target, the market will increasingly tend to ignore hawkish comments from policymakers,” said Jane Foley, senior currency strategist at Rabobank. “This is likely to be particularly the case in the UK, given the weak economic outlook.”
In Asia, the yen was last trading at 142.09 per dollar, unfazed by Friday’s data that showed Japan’s core consumer prices rose 2.5 percent in November from a year earlier, marking the slowest pace of growth in more than a year and easing pressure on the Bank of Japan. (BOJ) to gradually phase out its massive stimulus measures.
The Japanese currency looked set to end the week virtually unchanged, after the BoJ earlier this week maintained its ultra-easy monetary policy and gave little indication of when it might move away from interest rates. negative.
