The dollar is up sharply against its major rivals at the end of the trading week. The U.S. currency has received a boost from the U.S. inflation data released this morning, as well as comments from Federal Reserve Chair Janet Yellen this afternoon.
Consumer prices in the U.S. rose in line with economist estimates in the month of April, according to a report released by the Labor Department on Friday, although the report also showed a bigger than expected increase in core prices.
The Labor Department said its consumer price index inched up by 0.1 percent in April after rising by 0.2 percent in each of the two previous months. The modest increase matched economist estimates.
The core consumer price index, which excludes food and energy prices, rose by 0.3 percent in April following two consecutive 0.2 percent monthly increases. The increase in core consumer prices exceeded the 0.1 percent uptick that was anticipated by economists.
The Federal Reserve will likely raise interest rates this year, as long as economic activity picks up, Janet Yellen said Friday. From there, the pace of future hikes will be gradual, she added.
In a speech to the Chamber of Commerce in Providence, R.I., Yellen said transitory factors were mostly to blame for first quarter weakness, and that the economy should improve throughout the year.
The labor market is now “approaching full strength,” and unemployment should fall to near 5 percent by the end of the year, she predicts.
“Delaying action to tighten monetary policy until employment and inflation are already back to our objectives would risk overheating the economy,” Yellen said.
“If conditions develop as my colleagues and I expect, then the FOMC’s objectives of maximum employment and price stability would best be achieved by proceeding cautiously, which I expect would mean that it will be several years before the federal funds rate would be back to its normal, longer-run level.”
European Central Bank President Mario Draghi reiterated on Friday that euro area economic conditions have improved, indicating a cyclical recovery, and urged the region’s governments to make progress on structural reform that is essential to sustain the momentum.
“The economic outlook for the euro area is brighter today than it has been for seven long years. Monetary policy is working its way through the economy,” Draghi said in a speech at an ECB central banking conference in Sintra, Portugal.
“Growth is picking up. And inflation expectations have recovered from their trough. This is by no means the end of our challenges, and a cyclical recovery alone does not solve all of Europe’s problems.”
The dollar slipped to an early low of $1.1207 against the Euro Friday morning, but has since climbed to over a 3-week high of $1.0090.
German business confidence weakened marginally from a 10-month high in May and the economy grew at a slower pace in the first quarter, as initially estimated, revealed two separate reports released Friday.
The business confidence index fell less-than-expected to 108.5 in May from 108.6 in April, according to a survey by Munich-based Ifo Institute. This was the first fall in seven months but the index came in above the economists’ estimate of 108.3.
Germany’s economic growth eased as estimated in the first quarter largely due to the weakness in foreign trade, final data from Destatis showed Friday. Gross domestic product grew 0.3 percent sequentially in the first quarter, slower than the 0.7 percent expansion seen in the fourth quarter.
The total value of new orders received by the German construction industry declined in March, figures from Destatis showed Friday. Orders in the construction sector fell a seasonally and working-day-adjusted 2.2 percent month-over-month in March.
French consumer confidence improved unexpectedly in May to the strongest level since August 2011, survey data from the statistical office Insee showed Friday. The manufacturing confidence index rose slightly to 103 in May from 102 in the previous month, which was revised from a reading of 101. Economists had expected the index to remain stable at 101.
Bank of England Deputy Governor Minouche Shafik said productivity growth is likely to resume and factors pulling inflation down could be temporary.
“I think it is reasonable to expect that resumption in productivity growth to come over the next year or so as the continued narrowing of slack in the labor market raises the incentive to increase output by increasing output per worker,” she said at the Association of Corporate Treasurers Annual Conference on Friday. But the degree of uncertainty around the timing is high.
The buck traded around the $1.5680 level against the pound sterling Friday morning, but has since risen to a 3-session high of $1.5465.
The U.K. budget deficit narrowed in April from last year, data published by the Office for National Statistics showed Friday. Public sector net borrowing excluding banks declined by GBP 2.5 billion to GBP 6.8 billion in April.
British households perceive that the value of their home increased in May, a survey from Knight Frank and Markit Economics showed Friday. The house price sentiment index, or HPSI, fell slightly to 58.0 in May from 58.2 in the previous month. However, a reading above 50 indicates a rise in house prices. This marked the twenty-sixth successive month of the index remaining above 50.
The Bank of Japan refrained from easing monetary stimulus further as policymakers assessed that faster economic growth in the first quarter warrants no more immediate actions. The Policy Board of the BoJ governed by Haruhiko Kuroda decided by an 8-1 majority vote to maintain its target of raising the monetary base at an annual pace of about JPY 80 trillion.
The greenback dipped to an early low of Y120.629 against the Japanese Yen Friday morning, but has since broken out to over a 2-month high of Y121.560.
The material has been provided by InstaForex Company – www.instaforex.com