By Chibuike Oguh
NEW YORK (Reuters) -The dollar edged lower but was still on track for its second straight week of gains against major peers on Friday after data continued to show U.S. economic resilience, potentially complicating the Federal Reserve’s efforts to cut interest rates.
The dollar was down 0.18% to 149.52 against the Japanese yen, on track for a fifth consecutive week of gains and trading near its highest level since August 1.
The euro was up 0.27% to $1.1698. It was on course to finish the week lower, snapping three straight weeks of gains.
US DATA TAKES STEAM OUT OF FED RATE CUT PRICING
U.S. consumer spending, which accounts for more than two-thirds of economic activity, rose 0.6% in August, slightly higher than the 0.5% estimated by economists polled by Reuters.
The Personal Consumption Expenditures Price Index, which is the Fed’s preferred inflation measure, rose 0.3% last month, in line with expectations, U.S. Commerce Department data showed.
“I think it’s pretty clear that stronger economic data has taken the steam out of the pricing for Fed rate cuts and that’s sort of narrowed the interest rate differential with other countries and pushed the dollar higher,” said John Velis, Americas FX and macro strategist at BNY in New York.
“We still think that hedging behavior is quite strong, so we still see lots of forward selling of dollars even while the U.S. assets, particularly U.S. equities, continue to gain influence from abroad, although that’s taken a little bit of a backseat this week as well to some degree. But I think it’s fairly clear that as Fed expectations go so will the dollar go in the short term,” Velis added.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.3% to 98.28. It was still on track for the second straight week of gains.
The two-year note yield, which typically moves in step with interest rate expectations for the Fed, fell 1.6 basis points to 3.647%.
Richmond Federal Reserve President Thomas Barkin said he sees limited risks of a big rise in either unemployment or inflation, letting the Fed balance its two goals as it debates further interest rate cuts. Barkin is the latest Fed official to comment on the Fed’s decision last week to start cutting rates.
Traders are pricing in an 85.5% chance of a 25 basis-point rate cut at the Fed’s next meeting, down from nearly 92% probability a week ago, according to CME’s FedWatch tool.
Data had shown on Thursday that U.S. gross domestic product rose by an upwardly revised 3.8% from April through June, beating expectations.
The dollar was down 0.19% to 0.789 against the Swiss franc. It was still on track to finish the week higher, ending a run of six consecutive weeks of losses.
(Reporting by Chibuike OguhEditing by Mark Potter)
