The US dollar has hit a one-year low in early European trade on Friday as expectations of lower-than-anticipated inflation data increase the likelihood of an early end to the Federal Reserve’s rate-tightening cycle.
The Dollar Index, which measures the currency against a basket of six other currencies, fell 0.2% to 100.515, levels not seen since April last year. It is on course for its sharpest weekly decline, more than 1%, since January.
The US producer prices index fell 0.5% in March from the previous month, the largest drop since the pandemic’s start. The PPI also slowed on an annual basis, rising 2.7% from a year ago, the smallest gain in more than two years.
Excluding volatile food and energy components, the core PPI fell 0.1% from February and increased 3.4% from a year ago.
Investors anticipate an upcoming Fed easing cycle, expecting a weaker dollar, and are looking for opportunities. The Federal Reserve is expected to increase interest rates again next month by 25 basis points, but the market is growing that it may cut interest rates before year-end.
Meanwhile, the European Central Bank is expected to continue to raise interest rates longer than the US, and the Bank of England is seen raising rates again in May with UK inflation in double digits, having accelerated to 10.4% in February.
In currency markets, the euro rose 0.2% to $1.1069, a fresh one-year high, and the pound rose 0.1% to $1.2535, a 10-month high. The Australian dollar was set for a 1.7% gain this week, largely flat at $0.6782, with the Reserve Bank possibly raising rates higher after a much stronger-than-expected employment report.
The Japanese yen fell 0.1% to 132.50, while the Chinese yuan fell 0.5% to 6.8382, with the yuan supported by PBOC Governor Yi Gang reiterating the government’s 5% GDP target for 2023.