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Following recent remarks from several Federal Reserve officials, particularly members of the bank’s rate-setting committee, the dollar has exhibited signs of recovery, albeit cautiously. The discourse primarily revolves around the need for heightened confidence in inflation moderation, despite the modest easing observed in April.
St. Louis Federal Reserve President Loretta Mester articulated a revised perspective, indicating a prolonged timeline in achieving the 2% inflation target. “I now believe that it will take longer to reach our 2% goal than I previously thought,” stated Mester on Thursday, emphasizing the necessity for continuous vigilance over incoming economic data.
Echoing similar sentiments, Federal Reserve Bank of New York President John Williams expressed his alignment with the cautious approach. “I don’t see any indicators now telling me… there’s a reason to change the stance of monetary policy now, and I don’t expect that, I don’t expect to get that greater confidence that we need to see on inflation progress towards a 2% goal in the very near term,” affirmed Williams.
However, despite the dollar’s modest recovery, it remains poised for a weekly loss of approximately 0.7%. This trend stems from the market’s reaction to the unexpectedly mild U.S. inflation data, fostering anticipation of two potential interest rate cuts by the Federal Reserve, potentially commencing in September.
Additionally, U.S. retail sales stagnated in April, falling below expectations, while manufacturing output experienced an unexpected decline.
Analysts at ING posit a cautious outlook for the near term, suggesting a possible stabilization in USD crosses as the market awaits the release of the April core PCE data on May 31st.
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