Dollar Weakens as U.S. Inflation Cools; Yen Strengthens on Japanese Political Shift

The dollar weakened after U.S. inflation data showed cooling price pressures. The yen strengthened against the dollar following Shigeru Ishiba’s victory in Japan's prime ministerial race. U.S. consumer spending rose but didn’t meet expectations, influencing market expectations of a further Federal Reserve interest rate cut in November.

The dollar weakened on Friday as U.S. inflation readings indicated cooling price pressures, while the yen gained strength against the greenback following former defense minister Shigeru Ishiba's expected ascension to Japan's prime ministership.

The U.S. personal consumption expenditures (PCE) price index rose by 0.1% in August, meeting economists' expectations, following an unrevised 0.2% rise in July. Over the year, the PCE price index increased by 2.2%, decelerating from July’s 2.5% rise. Consumer spending, representing more than two-thirds of U.S. economic activities, grew by 0.2% last month, slightly short of the 0.3% forecast.

The Federal Reserve recently shifted its focus towards sustaining a robust labor market, implementing a significant 50 basis point rate cut last week. The dollar index dipped 0.39% against major currencies and is on track for a fourth consecutive weekly decline. Meanwhile, the yen strengthened 1.43% to 142.75 per dollar after Ishiba's leadership win, indicating a possible departure from previous monetary stimulus policies.