The US Dollar is Cooling: Inflation Figures Indicate Rate Hike Decrease

The dollar dropped overnight and remained sluggish in Asian trade on Thursday due to lower-than-expected US inflation statistics, which caused the interest rate to remain low. The Fed is expected to conclude its monetary tightening next month with one final interest rate hike.

The Dollar Index and Consumer Price Index

The dollar index dropped 0.6% overnight, although it was able to somewhat recoup those losses before the session ended. The index was up 0.069% at 101.53 at the session's finish. But it kept recording losses for the eighth week in a row.

The Consumer Price Index shows that after rising by 0.4% in February, the CPI climbed by 0.1% last month. Higher rental rates more than offset the drop in petrol costs. In March, the CPI increased less than projected, by 0.1%, as opposed to the 0.2% that economists had forecast.

Federal Reserve Policy

Simon Harvey, head of FX analysis at Monex Europe, said that the US economy's underlying demand is still substantial enough to support inflation beyond the Fed's 2% target. However, the failure of two regional banks spurred some Federal Reserve policymakers to consider suspending interest rate rises. Ultimately, they decided that high inflation requires immediate addressing. The minutes also included the staff's predictions of a slight recession later this year.

According to CME FedWatch Tool, the Fed increased interest rates by 25 basis points in March. The markets are pricing in a 70% possibility of a subsequent 25 bps increase in May before lowering rates later in the year.

Impact of Consumer Spending on Forex

Investor focus will now shift to Friday's retail results to determine how consumer spending impacts the market.

Currency Exchange Rates

The euro increased by 0.02% to $1.0991 after reaching a session high of $1.1005 earlier in the day. The currency surged 0.7% higher on Wednesday. Economists expect it to rise for a sixth consecutive week, and traders bet that Europe would continue its path of monetary tightening.

Sterling was last trading at $1.249, up 0.07% after gaining 0.5% on Wednesday. The Japanese yen declined 0.05% to 133.21 per dollar. After a huge jobs report strengthened the case for another increase in interest rates and drove bond yields higher, the Australian dollar increased 0.33% to $0.671.

Bitcoin rose by 0.41% to $30,091.14 in cryptocurrency, and Ethereum was up 0.34% at $1,915.38.

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