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US inflation data shows cooling price pressures

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Yen strengthens after Ishiba wins Japan's leadership

contest

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Dollar index hits lowest since July 2023

(Updated at 9:07 p.m. ET/1307 GMT)

By Chuck Mikolajczak

NEW YORK, Sept 27 (Reuters) - The dollar weakened on

Friday after a reading of U.S. inflation indicated price

pressures continue to cool, while the yen strengthened against

the greenback after former defense minister Shigeru Ishiba was

set to become Japan's next prime minister.

The U.S. personal consumption expenditures (PCE) price index

rose 0.1% in August, matching expectations of economists polled

by Reuters, after an unrevised 0.2% gain in July. In the 12

months through August, the PCE price index increased 2.2% after

rising 2.5% in July.

In addition, consumer spending, which accounts for more than

two-thirds of U.S. economic activity, rose 0.2% last month after

an unrevised 0.5% gain in July. The data was slightly below the

0.3% estimate but indicated the economy still maintained some

momentum in the third quarter.

The Federal Reserve has recently signaled a shift in focus away

from inflation and towards keeping the labor market healthy, but

delivered a larger-than-usual interest rate cut of 50 basis

points (bps) last week.

"(Fed Chair) Powell can breathe a little sigh of relief," said

Brian Jacobsen, chief economist at Annex Wealth Management in

Menomonee Falls, Wisconsin.

"After pushing for a 50 bps cut instead of a more conventional

25 bps cut the personal income and spending data so far

vindicates that decision."

The dollar index, which measures the greenback against a

basket of currencies including the yen and the euro, was down

0.39% at 100.21, after falling to 100.15, its lowest since July

20, 2023, with the euro up 0.16% at $1.1195.

The dollar is down nearly 0.6% for the week, on pace for its

fourth straight weekly decline. The euro is up more than 0.3%

and set for a second straight weekly gain.

Markets are fully pricing in a cut of at least 25 basis points

at the Fed's November meeting, with expectations for another

upsized 50 basis point cut edging up to 54.1% after the data,

according to CME's FedWatch Tool, from 49.9% before the release.

The yen strengthened after Japan's Ishiba won the leadership

contest of the country's ruling Liberal Democratic Party in a

narrow victory.

Ishiba is a critic of past monetary stimulus and told Reuters

the central bank was "on the right policy track" with rate hikes

thus far. Markets had been largely expecting a win for hardline

nationalist Sanae Takaichi, a vocal opponent of further interest

rate hikes, pricing in loose monetary and fiscal policies and a

weaker yen over the past week.

The Japanese yen was 1.43% stronger at 142.75 per dollar

after strengthening as far as 142.48, on track for its biggest

daily percentage gain since Aug. 5. For the week, the dollar is

down about 0.7% against the yen.

The euro fell 1.24% to 159.83 against the Japanese currency.

The euro was also down 0.13% at $1.1163 after data

showed inflation in France and Spain rose less than expected,

prompting traders to ramp up their bets on an October rate cut

from the European Central Bank.

China, meanwhile, launched another round of stimulus measures on

Friday, as the country's central bank lowered interest rates and

injected liquidity into the banking system as it attempts to

bring economic growth back towards this year's target of about

5%.

The dollar strengthened 0.16% to 6.982 versus the

offshore Chinese yuan.

Sterling strengthened 0.04% to $1.3421 and is up more

than 0.7% on the week, poised for a second straight weekly

advance.