(Updated at 0930 EDT)
The dollar backed off 10-month highs on Friday but was still headed for its biggest quarterly gain in a year, giving the yen some breathing room as the Japanese currency remains under scrutiny for potential government intervention.
The greenback held on to losses after U.S. data showed U.S. consumer spending increased in August, but underlying inflation moderated, with the year-on-year rise in prices excluding food and energy slowing to less than 4.0%.
“Prices are higher on a monthly basis, but overall, inflation is moving lower. It’s good news for the market because the Fed is looking at the core rate,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.
The dollar has gained on expectations that the U.S. economy will remain more resilient to higher interest rates and oil prices than other economies, after the Federal Reserve last week warned it may hike rates further and is likely to hold them higher for longer.
The dollar index =USD , which tracks the U.S. currency against six others, fell 0.23% to 105.91 on Friday, but was on track to end the quarter up 2.93% and post an 11th straight weekly rally - its longest such run in nine years. It is down from a 10-month high of 106.84 on Wednesday.
"We've had resilience in the U.S. economy, in the jobs market, inflation ticking higher and, obviously, the rise in oil prices. There's a lot in play here," City Index markets strategist Fiona Cincotta said.
"We're not really expecting to see any rate cuts for quite some time, well toward the back end of 2024. And also, the Fed might not want to adopt a less hawkish tone, because they don’t want to unwind that work they’ve done too early."
With the U.S. economy expected to remain a global leader, some analysts see the greenback as likely to continue to outperform.
“We view this dollar weakness as corrective in nature and is most likely driven by quarter-end rebalancing,” Win Thin, global head of currency strategy at Brown Brothers Harriman in New York, said in a note.
“We’re not sure how long this correction lasts but investors should be looking for an opportunity to go long dollars again at cheaper levels,” he added.
Meanwhile, a partial government shutdown is looming, which could affect the release of economic data. A lack of data could create a "vacuum of uncertainty" as the Fed tries to determine whether another rate increase is needed this year, said Tony Sycamore, market analyst at IG.
The dollar fell 0.05% to 149.23 Japanese yen. It is down from an 11-month high of 149.71 on Wednesday. JPY=EBS
The yen remains in focus as it trades near the 150 level, which is viewed as potentially spurring intervention from Japanese authorities.
Core inflation in Japan's capital slowed in September for the third straight month mainly on falling fuel costs, data showed on Friday.
The euro is up 0.20% on the day at $1.0587. The single currency has bounced from an almost nine-month low of $1.0488 on Wednesday. EUR=EBS
Sterling GBP=D3 rose 0.32% to $1.2239, having this week hit its lowest since March 17, after data on Friday showed Britain's economic performance since the start of the COVID-19 pandemic has been stronger than previously thought.
======================================================== Currency bid prices at 9:30AM (1330 GMT)Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid Previous Change Session Dollar index =USD 105.9100 106.1600 -0.23% 2.338% +106.2200 +105.6500 Euro/Dollar EUR=EBS $1.0587 $1.0567 +0.20% -1.19% +$1.0617 +$1.0558 Dollar/Yen JPY=EBS 149.2300 149.3000 -0.05% +13.81% +149.5000 +148.5300 Euro/Yen EURJPY= 157.99 157.74 +0.16% +12.60% +158.3300 +157.4600 Dollar/Swiss CHF=EBS 0.9124 0.9152 -0.30% -1.32% +0.9155 +0.9093 Sterling/Dollar GBP=D3 $1.2239 $1.2202 +0.32% +1.21% +$1.2271 +$1.2198 Dollar/Canadian CAD=D3 1.3449 1.3487 -0.27% -0.73% +1.3506 +1.3417 Aussie/Dollar AUD=D3 $0.6482 $0.6428 +0.86% -4.89% +$0.6501 +$0.6421 Euro/Swiss EURCHF= 0.9659 0.9667 -0.08% -2.40% +0.9674 +0.9646 Euro/Sterling EURGBP= 0.8647 0.8659 -0.14% -2.23% +0.8674 +0.8643 NZ NZD=D3 $0.6028 $0.5961 +1.16% -5.03% +$0.6049 +$0.5964 Dollar/DollarDollar/Norway NOK=D3 10.6190 10.7230 -0.91% +8.26% +10.7370 +10.5810 Euro/Norway EURNOK= 11.2423 11.3328 -0.80% +7.13% +11.3460 +11.2225 Dollar/Sweden SEK= 10.8936 10.9151 +0.00% +4.66% +10.9371 +10.8190 Euro/Sweden EURSEK= 11.5333 11.5336 +0.00% +3.44% +11.5535 +11.4763
