Dollar advances against euro and yen, with data in focus; yen renews 34-year lows

The dollar lost steam after the publication of indicators from the United States, including the consumer spending price index (PCE). The currency, however, confirmed gains today against other major currencies, with the yen renewing lows in 34 years, in this case also with this morning’s decision by the Bank of Japan (BoJ, its acronym in English) in focus, maintaining interest rates , amid rumors about Tokyo’s potential intervention to contain the situation in the foreign exchange market.

At the end of the afternoon in New York, the dollar rose to 157.90 yen, the euro fell to US$1.0699 and the pound fell to US$1.2492. The DXY index, which measures the dollar against a basket of strong currencies, registered an increase of 0.32%, at 105,938 points, but in the weekly comparison it fell 0.20%.

The US PCE, the Federal Reserve’s preferred measure of inflation, rose 0.3% in March compared to February, as predicted by analysts interviewed by FactSet, with the core, which excludes volatile items such as food and energy, also showing an increase of 0.3%, as expected. In the annual comparison, the PCE rose 2.7% in March, accelerating compared to the 2.5% increase in February and also above the expected 2.6% increase. The annual core rose 2.8%, repeating the previous month’s result, compared to analysts’ projection of a 2.7% increase.

Although inflation continued to show strength, in the market there was a slight upward adjustment in the chances of relaxation by the Fed, and some analysts highlighted the fact that the strongest recent inflation occurred in January, with the prospect of momentum ahead. Personal income grew 0.5% in March compared to February, as expected, and consumer spending rose 0.8%, when a 0.5% increase was projected. After the data, including the PCE, there was some loss of momentum in the dollar. Towards the end of the morning, an increase in inflation expectations was reported in the USA, in the University of Michigan survey, which also showed a worsening in consumer sentiment.

The currency signal, however, remained positive, with some gain in strength in the afternoon. In this context, the American currency reached 34-year highs against the yen. Earlier, the BoJ maintained interest rates, as expected, and reaffirmed that monetary conditions should remain loose for now. Capital Economics believes that the Japanese Central Bank will raise interest rates in July.

In Europe, among directors of the European Central Bank (ECB), Mario Centeno argued that one should not wait for inflation to reach 2% to start cutting interest rates, given the negative effects of monetary tightening on activity. The ECB’s monthly survey also showed a drop in expectations for inflation in 12 months in the euro zone, from 3.1% in February to 3.0% in March, the lowest since December 2021.