NEW YORK- The dollar index was lower on Friday following two straight days of gains, after economic data showed a cooling in consumer spending, raising some doubt about the potential aggressiveness of the Federal Reserve in fighting inflation.
US Treasury yields were also mostly lower after the data.
The Commerce Department said consumer spending ticked up 0.1 percent in May while data for the prior month was revised to show spending accelerated by 0.6 percent versus the previously reported 0.8 percent. The personal consumption expenditures (PCE) gained 0.1 percent for the month after an 0.4 percent rise in April while advancing 3.8 percent on an annual basis, slowing from a revised 4.3 percent the prior month.
But the PCE gauges were still well above the Fed’s 2 percent inflation target.
“Spending was weak, especially in inflation-adjusted terms. Goods spending fell and even services spending looks to be sputtering,” said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.
“Inflation is drifting lower. The off-ramp to 2 percent inflation is a long one, though.”
The dollar index fell 0.426 percent to 102.880 and was virtually unchanged on the week.
The index had risen 0.82 percent over the prior two sessions after comments from Fed Chair Jerome Powell and solid economic data heightened market expectations the US central bank would raise interest rates two more times this year, while reducing the belief that a rate cut could be in the cards by the end of the year.
Expectations for a 25 basis points hike at the Fed’s July meeting dipped slightly, with markets now pricing in an 84.3 percent chance of a hike, down slightly from the 89.3 percent on Thursday, according to CME’s FedWatch Tool. – Reuters
