Dollar falls after US inflation data broadly in line with expectations By Reuters

By Luana Maria Benedito

SÃO PAULO (Reuters) – The currency fell against the real this Friday, cooling down after the previous day’s gain and with investors reacting positively to inflation data from the United States broadly in line with expectations.

At 10:20 am (Brasília time), the dollar in cash fell 0.64%, to 5.1323 reais on sale. At B3 (BVMF:), the first maturity contract fell 0.80%, to 5.124 reais.

“Treasury yields abroad lose steam, and the dollar usually follows,” said Fernando Bergallo, operations director at FB Capital.

Ten-year Treasury rates, a global benchmark for investment, accelerated their decline after data showed that inflation in the United States rose moderately in March, in line with market expectations.

The PCE price index, the Fed’s favorite for monitoring inflation, rose 0.3% last month, the U.S. Commerce Department said on Friday. February data has not been revised and shows a 0.3% increase in PCE. In the 12 months to March, inflation increased 2.7%, after rising 2.5% in February.

Economists consulted by Reuters predicted that the index would rise 0.3% in the month and 2.6% on an annual basis.

“Even with the annualized numbers a little higher than expected, the quarterly data released yesterday was so bad that the market was certainly preparing for something worse,” said Helena Veronese, chief economist at B. Side Investimentos.

“The chance of the Fed starting to cut interest rates in September is back on the radar,” she added. The day before, stronger-than-expected PCE inflation data in the first quarter led market participants to postpone bets on the timing of the Fed’s first easing until November or even December.

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Now traders in futures tied to the Fed’s benchmark interest rate are pricing in 36 basis points in rate cuts this year, with the first cut likely in September, according to LSEG data.

In Brazil, data from earlier showed that the IPCA-15 rose less than expected in April, with a drop in transport costs offsetting the weight of food prices, taking the 12-month rate to below 4%.

The day before, the North American currency closed the day at 5.1651 reais on sale, up 0.31%. The dollar is on track to record a drop of 1.28% compared to last Friday’s closing, interrupting a sequence of four consecutive strong weekly gains.

Part of this cooling of the dollar was attributed by operators to, more than a concrete improvement in general sentiment, market adjustment movements, common after exacerbated movements in the exchange rate.