NEW YORK/MILAN, April 25 (Reuters) - The U.S. dollar gained on Thursday after a hotter-than-expected inflation reading for the first quarter, affirming expectations that the start of the Federal Reserve's easing cycle could be pushed later in the year.
The yen, meanwhile, hit a fresh 34-year low versus the dollar and a 16-year low against the euro on Thursday as investors expect a Bank of Japan policy meeting that ends on Friday to not be hawkish enough to support the Japanese currency.
The focus, however, has been on the U.S. gross domestic product data and the report's inflation component. Data showed that GDP increased at a 1.6% annualized rate in the last quarter, based on advance estimates from the Commerce Department's Bureau of Economic Analysis. Economists polled by Reuters had forecast GDP rising at a 2.4% rate.
The report also showed that underlying inflation as measured by the core personal consumption expenditures (PCE) price index rose 3.7% in the first quarter, eclipsing forecasts for a 3.4% rise.
"The Fed will probably be more concerned with the PCE numbers, which have provided yet another hot set of inflation readings and suggest the battle to return CPI to target is still far from being won," said Stuart Cole, chief macro economist, at Equiti Capital in London.
"The inflation figures...potentially even point to the need for a further tightening. We know that returning CPI (consumer price inflation) to target is the Fed's main objective and therefore, on balance, today's figure probably push an interest rate cut further down the road."
The U.S. dollar fell as low as 155.31 yen against the Japanese unit after the GDP data, but recovered and was last up 0.1% at 155.53 yen.
The greenback rose to a 34-year high of 155.74 yen , while the euro surged to a 16-year high of 167.02 yen and was last flat on the day at 166.23.
The dollar index, a measure of the U.S. currency's value against six major peers, was up 0.2% at 105.96.
Following the GDP data, the U.S. rate futures market has priced in a 56.7% chance of a rate cut in September, down from 70% late on Wednesday, according to the CME's FedWatch tool.
Rate futures traders are now factoring in a 66% chance that the Fed's first rate cut since 2020 could be at the November meeting. (Reporting by Gertrude Chavez-Dreyfuss in New York and Stefano Rebaudo in Milan; Additional reporting by Medha Singh in Bengalaru; Editing by Chizu Nomiyama, William Maclean)