NEW YORK : The dollar gained on Thursday despite a soft U.S. producer price inflation report for May, after the Federal Reserve adopted a hawkish tone at the conclusion of its meeting on Wednesday.
Data on Thursday showed that U.S. producer prices unexpectedly fell in May, with the headline producer price index (PPI) dropping 0.2 per cent last month after advancing by an unrevised 0.5 per cent in April. Core prices were flat, after also seeing a 0.5 per cent increase the prior month.
It comes after May’s U.S. consumer price index (CPI) on Wednesday was softer than economists had expected, prompting a sharp sell-off in the greenback.
Combined, the CPI and PPI releases make it likely that Personal Consumption Expenditures (PCE), the Fed’s preferred inflation measure, will also show softening price pressures.
But optimism over cooling inflation was not enough to keep the dollar down.
The U.S. currency rebounded after Fed officials on Wednesday unexpectedly forecast only one interest rate cut this year and pushed out the start of rate cuts to perhaps as late as December.
The dollar index was last up 0.23 per cent at 104.93. It reached a four-week high of 105.46 on Tuesday, before dropping as much as 1 per cent after Wednesday’s CPI data.
Traders had pared bets that the Fed will cut in September after Friday’s employment report for May showed more jobs growth than expected, while wages also rose more than was anticipated.
The dollar is likely to remain supported as Fed policy contrasts with more dovish international central banks.
