Dollar gains on hawkish Fed, even as inflation cools
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% last month after advancing by an unrevised 0.5% in April. Core prices were flat, after also seeing a 0.5% 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.
«Today's PPI comes on the heels of a softer than expected CPI… which is going to feed into what probably is going to be a somewhat softer core PCE deflator when we get it at the end of the month,» said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.
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.
Fed Chair Jerome Powell said policymakers were content to leave rates where they are until the economy sends a clear signal that something else is needed — through either a more convincing decline in price pressures or a jump in the unemployment rate.
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