© Reuters. FILE PHOTO: U.S. Dollar and Euro banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo
By Saqib Iqbal Ahmed
NEW YORK, March 31 (Reuters) – The dollar pared gains against the euro on Friday after US data showed growth in personal consumption spending slowed in February, supporting hopes of a less aggressive monetary policy from the Federal Reserve.
* US consumer spending rose moderately in February, likely offsetting a rebound the previous month, and while inflation has shown signs of cooling, it remains elevated, so the Fed may raise interest rates again this anus.
* Earlier in the session, data showed euro zone inflation fell the most on record in March, but underlying pressures, excluding food and energy, accelerated, putting pressure on the European Central Bank to keep raising rates.
* The data has left markets positioned in favor of more rate hikes in the euro zone than in the United States
* “In terms of inflation, I think the Fed is in a better position than the ECB,” said Stuart Cole, chief macro economist at Equiti Capital.
* “Yes, inflationary pressures are above target, but if you look at the US, both headline and core inflation are moving in the right direction, albeit painfully slowly. But in the Eurozone there is a divergence that makes policymaking very difficult,” Cole said.
* The euro was down 0.06% at $1.08975 after the data was released. The common currency had fallen as much as 0.37% to a low of $1.08645 at the start of the session.
* The Fed is expected to raise overnight interest rates in May, but is still expected to reverse quickly and end the year lower than it started, according to US-linked futures contracts. the official interest rate of the US central bank.
* “My hunch is that the Fed will raise another 25 basis points in May, and that will be it…but I can see the ECB raising aggressively through the summer,” said Cole of Equiti Capital.
* “This could be positive for the (euro/dollar) from an interest rate standpoint.”
Sterling was largely flat on Friday at $1.2393 but on track to end the week up 1.3% against the dollar.
(Reporting by Saqib Iqbal Ahmed; Editing in Spanish by Javier López de Lérida)
