Dollar wobbles as inflation ebbs, eye on jobs data

SINGAPORE – The dollar held firm on Friday but was pinned down near 16-week lows against a basket of major currencies as data showing increased U.S. consumer spending in October emboldened investor hopes that the peak in interest rates was on the horizon.

The dollar index, which measures the currency against six major peers including the yen and euro, rose 0.191 percent at 104.840 but was not far off Thursday’s low of 104.56, the lowest since Aug. 11.

Data on Thursday showed that U.S. consumer spending in October increased at its greatest pace since January and the labor market remained resilient, with the number of Americans filing new claims for unemployment benefits declining last week.

The latest signs of a strong U.S. economy come after Federal Reserve Chair Jerome Powell said on Wednesday that it was time to slow rate hikes, noting that “slowing down at this point is a good way to balance the risks.”

The data “reinforces the market view that the FOMC is edging closer to the end of its monetary tightening cycle” and that has weighed on the U.S. dollar, said Carol Kong, a strategist at Commonwealth Bank of Australia.

Investors now turn their attention to nonfarm payrolls data on Friday for clues about how rate hikes have affected the labor market.

“In the near term, the currency market will be driven by U.S. payroll reports and given the market is closely monitoring any sign of a FOMC pivot and a weaker report today will weigh on the dollar,” Kong added.

The prospect of the Fed slowing its pace of monetary tightening has rejuvenated investor sentiment and sent the dollar tumbling after four straight 75 basis points hikes that fueled much of the greenback’s ascent this year.

Futures traders are now pricing for the Fed’s benchmark rate to peak at 4.87 percent in May, up from 3.83 percent now. Traders had priced for a top of over 5 percent before Powell’s comments on Wednesday.

Meanwhile, the dollar was 0.05 percent lower at 135.25 yen , having slipped as low as 135.045 yen earlier – the lowest since Aug. 18.

The euro down 0.1 percent to $1.0512, after gaining 1 percent overnight, while sterling was last trading at $1.2237, down 0.13 percent on the day. The pound advanced 1.7 percent overnight and touched a 5-month high of $1.2311.