US inflation data shows a slowdown, causing the yen to rise for a second consecutive day, while the dollar stabilizes against other currencies after a sharp decline the previous day.
Data on Wednesday showed that US April inflation fell to 0.3% from 0.4% in March, lower than the expected 0.4%. Core inflation (excluding food and energy prices) fell to its lowest level in three years at 3.6% year-over-year. Retail sales remained stable, suggesting that conditions for a Federal Reserve rate cut are maturing.
The dollar fell 1% against the yen on Wednesday and further decreased by 0.38% on Thursday to 154.32, after the yen took a hit from weak Japanese economic growth data, briefly dropping to 153.6.
The dollar index fell 0.75% on Wednesday but rose 0.11% on Thursday to 104.32, as investors increased their bets on Federal Reserve rate cuts, expecting two cuts by the end of the year.
Some analysts said that Federal Reserve officials need to see evidence of a downward inflation trend before considering rate cuts, a point raised by Minneapolis Federal Reserve President Neel Kashkari on Wednesday.
ING's foreign exchange strategist Francesco Pesole said: "Actually, there is not much to be optimistic about. Inflation trends are moving in the right direction but have not yet reached the level for the Federal Reserve to consider rate cuts."
Pesole stated that investors are now waiting for US personal consumption expenditure inflation data at the end of May. "My current view is that we may enter a few weeks of low volatility, lack of direction, and range trading again."
The euro touched a two-month high of $1.0895 on Thursday before retreating slightly, trading at $1.0874. The pound also retreated slightly after hitting a one-month high of $1.2675.
The Australian dollar rose 1% on Wednesday, reaching a four-month high of $0.6714, but paused after Australia’s unemployment rate unexpectedly rose. It is currently trading at $0.6684, with traders no longer considering the risk of further Australian rate hikes.
Bitcoin retreated slightly after reaching a three-week high of $66,695.
