The U.S. dollar strengthened on Friday after inflation data for March revealed growth, albeit at a slower pace, bolstering expectations that the Federal Reserve will increase interest rates at its upcoming monetary policy meeting next week.
The dollar index, which gauges the greenback's value against a basket of six major currencies, climbed 0.7% to reach 102.10. The U.S. currency also appreciated 1.5% against the yen, trading at 136.07 yen. Meanwhile, the euro dipped 0.4% against the dollar to $1.0984.
Data released on Friday indicated that the personal consumption expenditures (PCE) price index experienced a 0.1% uptick in March, compared to a 0.3% rise in February. Over the 12 months through March, the PCE price index climbed 4.2%, following a 5.1% increase in February.
When excluding the volatile food and energy components, the PCE price index rose by 0.3% in March, mirroring the growth rate in February. The core PCE price index, which the Fed monitors for its 2% inflation target, grew 4.6% year-on-year in March after increasing 4.7% in February.
Joe Manimbo, a senior market analyst at Convera in Washington, noted that the data presented a mixed picture, but highlighted the "frustratingly slow descent in core inflation." He added, "The dollar's benefiting from elevated core inflation, which I think is leading the market to rethink the outlook for rate cuts later this year and I think it sets the stage for the Fed to reiterate that interest rates are likely to remain higher for longer."
In response to the inflation data, the rate futures market has factored in a 90% probability of a 25 basis-point hike at next week's meeting.
