The dollar took a step back from a two-month high against a basket of major currencies on Wednesday after a mixed bag of U.S. economic data slightly tempered expectations of a near-term Federal Reserve rate hike.
The dollar index .DXY =USD pulled back from Monday's two-month peak of 95.895 to stand at 95.802.
The euro EUR= was little changed at $1.1133 in early trade, keeping some distance from Monday's 2-1/2-month low of $1.1097.
The yen JPY= also bounced back to 110.60 yen per dollar, off Monday's one-month low of 111.455.
U.S. consumer spending recorded its biggest increase in more than six years in April as households stepped up purchases of automobiles, suggesting an acceleration in economic growth that could persuade the Federal Reserve to raise interest rates soon.
The Commerce Department said consumer spending, which accounts for more than two-thirds of U.S. economic activity, surged 1.0 percent last month as households bought a range of goods and services.
Last month's increase was the largest since August 2009 and beat economists' expectations for a 0.7percent rise.
Strong consumption lifted inflation last month. The personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, rose 0.2 percent after edging up 0.1 percent in March. That left the increase in the year-on-year core PCE rate at 1.6 percent.
The core PCE is the Fed's preferred inflation measure and is running below its 2 percent target. Economists expect inflation to continue creeping higher this year, citing the dollar's fading rally and a gradual increase in oil prices and wages.
Financial markets are pricing in a roughly 61 percent chance of an interest rate increase at the July 26-27 Fed policy meeting, according to CME FedWatch.
China’s official factory gauge remained above the dividing line that signals improving conditions for a third month, adding to recent evidence of stabilization in the world’s second-largest economy.
The manufacturing purchasing managers index stood at 50.1 in May, the nation’s statistics agency said Wednesday, matching April’s level and beating the median estimate of 50 in a Bloomberg News survey of economists. The non-manufacturing PMI was at 53.1 compared with 53.5 in April. Numbers above 50 indicate improving conditions.
Prime Minister Shinzo Abe is expected to announce later on Wednesday that he will delay a scheduled sales tax hike by two-and-a-half years to avoid a further shock to the sputtering economy, but the move has been widely expected and is adding to doubts about his reflationary policies and commitment to cutting the country's massive public debt.
U.S. oil prices added to gains in North American trade on Tuesday, after a report from industry research group Genscape showed that supplies at the Cushing, Oklahoma delivery point for U.S. crude fell last week.
Crude stocks at the Cushing, Oklahoma, delivery hub for WTI dropped by 686,700 barrels, Genscape said.
Crude oil for July delivery on the New York Mercantile Exchange rose 58 cents, or 1.18%, to trade at $49.91 a barrel by 14:26GMT, or 10:26AM ET.
Elsewhere, on the ICE Futures Exchange in London, Brent oil for August delivery tacked on 23 cents, or 0.46%, to trade at $50.59 a barrel, as market players focused on an improving global supply outlook.
Market participants looked ahead to a key meeting of major oil producers later this week. The Organization of the Petroleum Exporting Countries will meet on Thursday in Vienna although no dramatic announcement on a production cut is expected.
Reference: Investing, Reuters, Bloomberg
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