Dollar recovery stems as selling momentum eases

The dollar is recovering as selling momentum wanes, while rising import prices highlight the challenging path of US disinflation, amid mixed signals from labor market data and cautious optimism from Federal Reserve officials.

By Ahmed Azzam | @3zzamous | 16 May 2024

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  • US initial jobless claims fell to 222,000, slightly above the expected 219,000.

  • New York Fed President John Williams stated there is no immediate need to tighten monetary policy.

  • Williams highlighted the robustness of the economy, supported by strong consumer spending and a solid labor market.

The dollar is broadly recovering as selling momentum wanes. A notable rise in import prices underscores the complexity of the US disinflation journey, which Federal Reserve officials have described as potentially "bumpy."

US initial jobless claims edge down to 222,000

US initial jobless claims fell by 10,000 to 222,000 for the week ending May 11, slightly exceeding expectations of 219,000. The four-week moving average of initial claims rose by 2,500 to 218,000. Continuing claims increased by 13,000.

Fed's Williams: No immediate need to tighten monetary policy

In a Reuters interview, New York Fed President John Williams expressed confidence in the current state of monetary policy, stating it is “in a good place.” He noted strong consumer spending, business investment, and GDP growth, highlighting the economy’s robustness supported by a strong labor market. Williams emphasized that there is no immediate need to tighten monetary policy, as current indicators do not suggest that the Fed's actions are detrimental to the economy. "I don’t see any need to tighten monetary policy today," he added.

Looking ahead, Williams acknowledged that lower interest rates would be necessary as inflation nears the 2% target. He explained that once inflation is sustainably at this level, the Fed would need to reduce its “restrictive influence” on the economy and move to a “more neutral kind of position.”

ECB’s Centeno: Interest rates will decrease

ECB Governing Council member Mario Centeno stated at a news conference that the fall in Eurozone inflation towards the 2% target is "real," assuring that the monetary policy interest rate will decrease. “The market expects that the interest rate reduction will begin in June... I’m not going to anticipate the decision,” Centeno remarked. He also stressed his preference for gradual rate cuts over sharp, sudden reductions.