US Inflation Hits Federal Reserve's 2% Target in March

Matthew Sheridan of AllianceBernstein

Matthew Sheridan of AllianceBernstein

The Fed is scheduled to hold a monetary policy meeting this week, at which the central bank is widely expected to keep interest rates unchanged.

The department said Friday the USA economy grew by 2.3 percent during the first quarter of this year - a slower pace than the previous quarter.

The dollar's index against a basket of six major currencies rose 0.1% to 91.652, down from Friday's high of 91.986, its strongest level since January 11.

The Federal Reserve hit its elusive 2 percent inflation target in March, but that doesn't mean policymakers are ready to pronounce mission accomplished.

"With U.S. yields meandering around the 3% market, in the near term the dollar can definitely rise further", said Alvin Tan, FX strategist at Societe Generale.

"The euro's downturn is expected to continue in the near term amid receding prospects of the European Central Bank embarking on monetary tightening", said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.

"With such themes weighing on its peers, the dollar looks well supported against the euro and pound, even without help from USA higher Treasury yields".

But as spending rose in March, so did inflation, which rose 1.9 percent year-over-over - the fastest pace since February 2017.

In late NY trading on Monday, the euro was down to $1.2081 from $1.2123 in the previous session, and the British pound decreased to $1.3749 from $1.3784 in the previous session, Xinhua news agency reported.




Sterling had soared to a 22-month high near $1.4377 just two weeks ago on speculation that the Bank of England would hike interest rates soon.

"Fed speakers have done little to push back against this expectation ... we expect no fireworks", JPMorgan economist Michael Feroli said in a note to clients.

The dollar was a shade higher at 109.43 yen JPY= .

The dollar inched up 0.2% to 109.25 yen, having set a 2-1/2 month high of 109.54 yen on Friday. U.S. Treasury yields edged lower.

After years at with interest rates at zero in the aftermath of the global financial crisis, the United States central bank has nudged the rate up six times since the first move in December 2015, moving in increments of 0.25, or 25 basis points.

Currencies such as the Australian and the New Zealand dollar, which previously enjoyed the support of relatively high interest rates, have declined as their yield advantages have been eroded, particularly against the dollar.

The New Zealand dollar extended its decline to touch $0.7029 NZD=D4 , its lowest since December 27.

Stocks fell 2.3 percent in the wake of his comments, seemingly disappointed he had not promised to slow future rate increases in light of a possible trade war with China. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy.

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