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FOREX-Dollar steadies as strong U.S. inflation tempers chance of aggressive Fed rate cut

Reuters | Washington DC | Updated: 12-07-2019 05:59 IST | Created: 12-07-2019 05:57 IST
FOREX-Dollar steadies as strong U.S. inflation tempers chance of aggressive Fed rate cut
Image Credit: Pixabay

The dollar was steady on Friday, having regained some traction against its peers after stronger-than-expected U.S. inflation data tempered the prospect of an aggressive Federal Reserve interest rate cut later this month. The core U.S. consumer price index excluding food and energy components rose 0.3% in June, the largest increase since January 2018, data on Thursday showed.

The signs of a pick-up in underlying inflation, along with separate data on weekly jobless claims showing the labour market remained solid, curbed financial market expectations of a more aggressive 50 basis point cut at the Fed's July 30-31 meeting. Markets are still fully priced for a quarter percentage point cut as U.S. policymakers seek to support a slowing economy.

The dollar was little changed at 108.490 yen after rebounding from a low of 107.860 plumbed on Thursday in response to dovish comments from Fed Chairman Jerome Powell, which had revived the chance of a 50 basis-point cut. "The dollar bounced back as the strong U.S. CPI got the market to question the Fed's view on prices and whether inflation was really as weak as projected," said Takuya Kanda, general manager at Gaitame.Com Research Institute.

"Expectations for a 50 basis point cut had risen after Powell's comments but were lowered again by the CPI. Until the Fed's meeting later this month, the prospect of a 50 basis point cut will continue ebbing back and forth on each major data release." The dollar index against a basket of six major currencies stood little changed at 97.081 after retracing much of its losses on Thursday, when it had briefly stooped to a six-day low of 96.795.

The euro was flat at $1.1254, having pulled back from a high of $1.1285 scaled on Thursday prior to the U.S. inflation data.. The Australian dollar dipped 0.05% to $0.6972 after gaining 0.2% the previous day.

The U.S. Treasury 10-year yield, which often dictates the direction of the dollar, was at 2.134% after jumping 8 basis points overnight on the strong U.S. inflation data and a weak 30-year bond auction.


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