Investing.com – The U.S. dollar edged higher in European trade Friday, but was on track for a hefty weekly fall after cooling inflation and weak retail sales brought Federal Reserve rate cuts back into focus.
At 04:10 ET (08:10 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% higher at 104.580, marginally above a five-week low just below 104 seen earlier this week.
Dollar steadies after hawkish Fed speak
The dollar has recovered to a degree as several Fed officials, specifically members of the bank’s rate-setting committee, said that they needed much more confidence that inflation was coming down, beyond some easing inflation in April.
“I now believe that it will take longer to reach our 2% goal than I previously thought,” St. Louis Federal Reserve president Loretta Mester said on Thursday, adding that further monitoring of incoming data will be needed.
Federal Reserve Bank of New York President John Williams agreed with this view.
“I don’t see any indicators now telling me … there’s a reason to change the stance of monetary policy now, and I don’t expect that, I don’t expect to get that greater confidence that we need to see on inflation progress towards a 2% goal in the very near term,” Williams said.
However, the dollar is still on course for a weekly loss of around 0.7% after the milder than expected U.S. data raised expectations the will deliver two interest rate cuts this year, probably starting in September.
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U.S. were also flat in April and softer-than-expected, and manufacturing output unexpectedly fell.
“Our view for the near term remains that we could see a further stabilisation in USD crosses as markets await the next key data input: April core PCE on 31 May,” said analysts at ING, in a note.
Euro slips ahead of CPI release
In Europe, traded 0.1% lower to 1.0860, having traded as high as 1.0895 in the wake of U.S. inflation release, but the single currency is still up around 0.9% on the dollar this week.
The final reading of the is due later in the session, and is expected to show inflation rose by 2.4% on an annual basis in April.
The is widely expected to cut interest rates in June, but traders remain unsure of how many more cuts, if any, the central bank will agree to over the course of the rest of the year.
Traders have priced in 70 basis points of ECB cuts this year – a lot more than the just under 50 bps of easing priced in for the Fed.
fell 0.1% to 1.2658, but is still on track for gains of around 1% this week.
The Bank of England is also expected to cut rates from a 16-year high this summer, but volatility is likely to be limited ahead of the release of key U.K. inflation figures next week.
Yen slips after weak Japanese GDP data
In Asia, rose 0.3% to 155.87, close to breaking above 156, after weaker-than-expected Japanese data for the first quarter.
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traded 0.1% higher at 7.2209, moving back to six-month highs above 7.22 after data earlier Friday showed grew more than expected in April, but growth in slowed sharply, while a decline in Chinese house prices accelerated last month.
