Dollar Underpinned By Data On Inflation

On Wednesday, the U.S. dollar held onto modest gains following its broad strengthening. This was after U.S. consumer prices had their largest increase in more than a year in May to spark speculations that the Federal Reserve may inch closer to rate hikes.

dollar share market

The greenback reached a one-week high of 102.245, while the euro retreated from a one-week peak hit on Tuesday to $1.3547. The U.S. consumer price index rose 0.4 percent, double what economists had expected that increased the risk that a separate inflation gauge watched by the Federal Reserve also pushed higher in May.

“Almost all measures of U.S. price pressure are rising, and the CPI shows the clear upswing,” said Emma Lawson, senior currency strategist at National Australia Bank in Sydney.

“With the U.S. labor market improving, and the Fed’s other mandate being stable prices, these type of inflation pick-ups will make it difficult for the Fed to ignore,” she said.

“Our economics team expects the Fed will, in fact, deliver a more hawkish message,” analysts at BNP Paribas wrote in a note to clients.

“The statement is likely to upgrade views on inflation and the labor market and the projections of future Fed funds rates are likely to show a creep higher relative to those presented in March,” they said.

The pound stood flat at $1.6962, off a five-year high of $1.7011 hit on Monday.

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