US Inflation Rate Strengthening Dollar

Written by  Published by:Pakistan Views Saturday, 27 February 2016 15:53

NEW YORK: The dollar strengthened Friday after a key US inflation indicator rose, underpinning the Federal Reserve’s plan to raise interest rates this year, and fourth-quarter economic growth was stronger than expected.

US core inflation, as measured by the personal consumption expenditures price index, was up 1.7 percent year-on-year in January, nudging closer to the Fed’s 2.0 percent target.

“Core inflation is showing clear signs of accelerating,” said Jim O’Sullivan, chief US economist at High Frequency Economics.

The dollar also got a lift from an upward revision to US economic growth in the fourth quarter that was much better than expected, at a 1.0 percent annual pace instead of the initial estimate of 0.7 percent.

While that still marked a slowdown from the third quarter’s growth, analysts had expected the rate would be cut to 0.4 percent.

“Despite mixed internals (consumption slowed slightly), market participants are taking the data as a sign that some of the near-term pessimism regarding the US economy may be overblown,” said Christopher Vecchio of Daily FX in a client note.

The euro fell to a session low of $1.0912, its lowest in more than three weeks, before recovering slightly to $1.0935 around 2200 GMT, down 0.8 percent from Thursday.

 

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