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U.S. dollar strengthens as new data suggest slowing inflation

The dollar gained on Thursday, poised for a 1.69 percent monthly increase against a basket of major currencies as new data suggested slowing inflation in the U.S.

The dollar index climbed 0.48 percent to reach 103.59, a decrease from Friday’s 104.44, the highest level since June 1.

According to Joe Manimbo, senior market analyst at Convera in Washington, Thursday’s data signaled that the dollar was performing better. It implied that “the economic glass of America is still half full.”

“The dollar does remain in a hole for the week, and that’s because weaker numbers earlier this week cast doubt on the Fed hiking again,” said Manimbo, as quoted by Reuters.

On Thursday, the greenback declined 0.54 percent against the yen, with the Japanese currency settling at 145.42, below the 10-month peak of 147.375 attained on Tuesday. Overall, the dollar rose 2.21 percent against the Japanese currency in August.

On the other hand, the euro declined 0.71 percent to trade at $1.0846. This was above the $1.07655 mark from last Friday, the lowest point since June 13. The euro was set for a monthly decrease of 1.37 percent.

The euro’s decline followed remarks from Isabel Schnabel, a European Central Bank (ECB) official known for her hawkish stance. Schnabel noted that eurozone growth was below initial forecasts. Nevertheless, she emphasized that it does not automatically omit the possibility of more rate hikes.

Data point out potential economic slowdown

In July, U.S. consumer spending saw its largest increase in six months, rising by 0.8 percent. However, the inflation decline bolstered the anticipation that the Federal Reserve would maintain current interest rates in September.

The personal consumption expenditures (PCE) price index increased by 0.2 percent in July, aligning with June. It followed a series of data released this week, including a decline in job openings to their lowest point in almost two and a half years. It raised concerns about a potential slowdown in the economy.

The jobs report for August — set to be released on Friday — will validate whether the labor market shows signs of decline. Economists surveyed by Reuters anticipate that the data will reveal an additional 170,000 jobs by employers during the month.

Thursday’s data showed a decline of 4,000 in initial claims for state unemployment benefits. It reached a seasonally adjusted figure of 228,000 for the week ended on August 26.

Atlanta Fed President Raphael Bostic also mentioned Thursday that the current monetary policy is sufficiently restrictive to lower inflation back to two percent within a “reasonable” timeframe.

Fed funds futures indicate an 89 percent chance that the U.S. central bank will maintain rates during its September meeting. Investors are factoring in a 45 percent probability of a rate hike in November, according to CME Group’s FedWatch Tool.

In Europe, Thursday’s data revealed that eurozone inflation held steady this month. However, the drop in underlying price growth complicates matters for the ECB as it is considering a rate hike pause amid a visible economic slowdown.

German unemployment increased beyond projections in August, revealing initial weaknesses in a previously robust job market. The market predicted a 69 percent likelihood that the ECB would maintain its interest rates at the September meeting.