- U.S. annual PCE inflation data posts largest gain since 1982
- U.S. labor cost index rises in Q2
- U.S. fed funds futures see rate peak in February post-data
(Recasts, adds new comment, U.S. data, FX table, bullets, byline, NEW YORK dateline, updates prices)
The dollar rebounded from a three-week low in choppy trading on Friday, as a round of U.S. economic data suggested that inflation continued its red-hot rise in June, keeping the Federal Reserve on track to raise interest rates as aggressively as it deems necessary.
The yen fell from six-week peaks against the dollar as investors digested Friday's data, which showed U.S. inflation perked up in June.
The personal consumption expenditures (PCE) price index jumped 1.0% last month, the largest increase since September 2005 and followed a 0.6% gain in May. In the 12 months through June, the PCE price index advanced 6.8%, the biggest gain since January 1982. The PCE price index rose 6.3% year-on-year in May.
Excluding the volatile food and energy components, the PCE price index shot up 0.6% after climbing 0.3% in May.
"The buck seems to be improved somewhat over peers because the PCE does indeed indicate that inflation has not necessarily cooled for personal items, thus giving the Fed enough room to hike as they have been telegraphing," said Juan Perez, director of trading at Monex USA in Washington.
Another key indicator, the U.S. employment cost index (ECI), also increased. The ECI, the broadest measure of labor costs, rose 1.3% last quarter after accelerating 1.4% in the January-March period, the Labor Department said on Friday.
The index is widely viewed as one of the better gauges of labor market slack and a predictor of core inflation, as it adjusts for composition and job-quality changes. It is being closely tracked for signs of whether wage growth has peaked.
Action Economics, in its blog after the U.S. data, said the ECI was one of the metrics that alarmed the Fed and caused its pivot to a 75 basis points hike.
Friday's reports somewhat negated data on the contraction in U.S. gross domestic product for the second quarter released the day before, which caused a pullback in rate hike expectations.
Post-data on Friday, rates futures markets have priced in a 62% chance of a 50 basis points rate hike at the Fed's September policy meeting, down from about 70% probability before the U.S. economic reports. FEDWATCH .
The rates markets also predict that the fed funds rate will peak in February 2023. Before the day, futures were betting that top in the fed funds rate would hit this December.
In morning trading, the dollar index, a measure of its value against six major currencies, rose 0.4% to 106.60 =USD . Earlier, it slid to a three-week trough of 105.53
The euro fell 0.4% versus the dollar to $1.0155 EUR=EBS . Against the yen, the dollar was last up 0.1% at 134.38 yen JPY=EBS . The yen was the primary short bet of the widening interest rate differential trade between the United States and its global peers, with net shorts on the currency, despite a recent pullback, above historical averages at $5.4 billion. JPYNETUSD=
======================================================== Currency bid prices at 9:44AM (1344 GMT)Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid Previous Change Session Dollar index =USD 106.5300 106.2100 +0.31% 11.360% +106.6700 +105.5300 Euro/Dollar EUR=EBS $1.0158 $1.0196 -0.37% -10.65% +$1.0255 +$1.0147 Dollar/Yen JPY=EBS 134.2800 134.2300 +0.06% +16.67% +134.6700 +132.5050 Euro/Yen EURJPY= 136.41 136.88 -0.34% +4.67% +137.3200 +135.5600 Dollar/Swiss CHF=EBS 0.9578 0.9550 +0.32% +5.03% +0.9593 +0.9504 Sterling/Dollar GBP=D3 $1.2080 $1.2184 -0.91% -10.73% +$1.2245 +$1.2065 Dollar/Canadian CAD=D3 1.2843 1.2805 +0.30% +1.59% +1.2855 +1.2790 Aussie/Dollar AUD=D3 $0.6922 $0.6993 -1.02% -4.78% +$0.7031 +$0.6912 Euro/Swiss EURCHF= 0.9730 0.9737 -0.07% -6.16% +0.9753 +0.9713 Euro/Sterling EURGBP= 0.8406 0.8374 +0.38% +0.07% +0.8414 +0.8369 NZ NZD=D3 $0.6228 $0.6291 -0.99% -9.00% +$0.6329 +$0.6222 Dollar/DollarDollar/Norway NOK=D3 9.7215 9.7335 +0.01% +10.50% +9.7435 +9.6665 Euro/Norway EURNOK= 9.8812 9.9125 -0.32% -1.36% +9.9722 +9.8739 Dollar/Sweden SEK= 10.2099 10.1995 -0.28% +13.23% +10.2309 +10.1292 Euro/Sweden EURSEK= 10.3731 10.4020 -0.28% +1.36% +10.4260 +10.3728 <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ World FX rates https://tmsnrt.rs/2RBWI5E^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
