FOREX-Dollar Holds Gains on US Data; Traders Eye Fed Session Next Week
The dollar held slight gains versus the euro on Friday, despite data showing decreasing consumer spending and cooling inflation in the United States, and as investors awaited a spate of central bank meetings next week.
Consumer spending, which accounts for more than two-thirds of US economic activity, fell 0.2% last month, according to the Commerce Department. The November data was revised downward, showing that expenditure fell 0.1% rather than rising 0.1% as first reported. Consumer expenditure was expected to fall 0.1%, according to economists surveyed by Reuters.
The Commerce Department announced that the Federal Reserve's favored inflation indicator, the personal consumption expenditures (PCE) price index, climbed 0.1% in December after rising 0.1% in November.
"US PCE came in very much as predicted and will have minimal influence on the Fed's impending decision," said Simon Harvey, head of FX Analysis at Monex Europe.
"Given the Fed's inclination for the length of restrictive monetary policy, we expect a slowdown in price pressures to result in the Fed raising rates to a terminal level of 5% by March," Harvey said.
Traders of futures contracts linked to the Fed's policy rate maintained bets on Friday that the US central bank will raise interest rates just one more after next week's widely anticipated quarter-point increase before pausing. 4.25% to 4.5% is the current goal range.
The euro was 0.17% down at $1.08725, although it was still close to the nine-month high of $1.09295 set on Monday. The common currency gained roughly 0.2% last week.
The dollar was 0.25% weaker against the yen, trading at 129.89 yen, as strong Tokyo inflation data fueled speculation that the Bank of Japan (BOJ) will take a hawkish stance.
Consumer price inflation in Japan's capital reached a nearly 42-year high last month, putting pressure on the BOJ to withdraw assistance.
The focus now shifts to a flurry of central bank policy choices, with the Fed, European Central Bank, and Bank of England (BoE) all set to make rate decisions next week as they assess what policy tweaks may be needed to combat high inflation amid a challenging global economic backdrop.
"There is a lot of event risk on the horizon right now. Not necessarily in terms of rates for next week, but more of the forward guidance provided by central banks, "Harvey stated.
Sterling fell 0.12% to $1.2397 on market concerns that the British economy's slowing may compel the Bank of England to terminate its tightening cycle soon, weakening the pound in the short term.
Meanwhile, bitcoin was up 1.5% on the day at $23,337, on track to end the week up approximately 2.6%, it's the fourth straight weekly gain after significant losses caused by the high-profile collapse of the FTX crypto exchange.