U.S. Dollar Slips Ahead of Key Inflation Data Release
U.S. Dollar Weakens in European Trade
The U.S. dollar is experiencing a slight decline in early European trade on Thursday, approaching a two-week low as investors await the release of crucial U.S. inflation data. At 03:15 ET (07:15 GMT), the Dollar Index, which tracks the greenback against a basket of other currencies, was trading 0.2% lower at 105.377. This places the dollar just above the day’s lowest point, marking the weakest level in two weeks.
Higher Bond Yields May Replace Rate Hike
The minutes from the Federal Reserve’s latest meeting, released on Wednesday, revealed that most policymakers believe another rate hike would be “appropriate” as inflation continues to surpass the target. However, uncertainties surrounding the economy have prompted caution in determining the extent of additional policy firming. The rise in Treasury yields following the September meeting has been cited by several Fed officials as a potential factor allowing them to end the rate hike cycle, which could adversely affect the U.S. currency. Analysts at ING noted that further bond rallies might bring a rate hike back on the table and limit the dollar’s losses.
Anticipation Builds for U.S. Consumer Price Index (CPI)
The U.S. dollar’s losses have been contained after September’s stronger-than-expected retail sales figures. This has created a sense of tension leading up to the release of the consumer price reading later in the session. Analysts are anticipating a 3.6% increase in the CPI from last year and a 0.3% rise for the month. Core CPI, which excludes food and fuel prices, is expected to rise 4.1% from last year and 0.3% from August. ING commented that the argument for a significant and sustained decline in the dollar from these levels is not very compelling, unless the drop in rates is accompanied by slower-than-expected inflation.
U.K. Economy Shows Growth in August
The British pound rose to 1.2323 after the U.K. GDP grew 0.2% in August, partially recovering from a sharp 0.6% drop in July. This growth reduces the possibility of a recession beginning in the July-September period. The Office for National Statistics (ONS) stated that the economy would need to grow by 0.2% in September to avoid a contraction in the third quarter.
Euro Continues to Climb
The euro increased by 0.2% to 1.0634, continuing its rise after reaching a two-week high on Wednesday. ING suggests that the upward correction in EUR/USD could extend to 1.0700, but predicts that it may be the top of the range unless the U.S. CPI surprises on the soft side. In other currency news, the Australian dollar rose 0.1% to 0.6419, the New Zealand dollar fell 0.2% to 0.6006, and the Chinese yuan edged lower to 7.2977.
