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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 2:41 p.m. ET/1841 GMT)

By Chuck Mikolajczak

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

after a reading of U.S. inflation signaled price pressures

continue to ebb, while the yen strengthened against the

greenback after Shigeru Ishiba, seen as an interest rate hawk,

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 0.17% at 100.43 after falling to 100.15, its lowest

since July 20, 2023, with the euro off 0.14% at $1.116.

The dollar is down about 0.2% for the week, on pace for its

fourth straight weekly decline and ninth in the last 10. The

euro was slightly lower for the week.

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 now up to 56.7% 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, a former defense minister, 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 1.88% stronger at 142.12 per

dollar after strengthening as far as 142.09, on track for its

biggest daily percentage gain since Aug. 2. For the week, the

dollar is down 1.25% against the yen., poised for its third

weekly decline in four.

The euro fell 1.95% to 158.67 against the Japanese

currency.

European data showed inflation in France and Spain rose less

than expected, boosting expectations for an October rate cut

from the European Central Bank to more than 90%.

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 0.11% to 6.979 versus the

offshore Chinese yuan.

Sterling declined 0.3% to $1.3375 and is up more than

about 0.4% on the week, poised for a second straight weekly

advance.