Dollar steady as strong US inflation tempers chance of aggressive Fed rate cut

The dollar index against a basket of six major currencies stood little changed at 97.081 after retracing much of its losses yesterday, when it had briefly stooped to a six-day low of 96.795. — AFP pic
The dollar index against a basket of six major currencies stood little changed at 97.081 after retracing much of its losses yesterday, when it had briefly stooped to a six-day low of 96.795. — AFP pic

TOKYO, July 12 ― The dollar was steady today, having regained some traction against its peers after stronger-than-expected US inflation data tempered the prospect of an aggressive Federal Reserve interest rate cut later this month.

The core US consumer price index excluding food and energy components rose 0.3 per cent in June, the largest increase since January 2018, data yesterday 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 US policymakers seek to support a slowing economy.

The dollar was little changed at ¥108.490 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 US 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 yesterday, when it had briefly stooped to a six-day low of 96.795.

The euro was flat at US$1.1254 (RM4.6255), having pulled back from a high of US$1.1285 scaled yesterday prior to the US inflation data..

The Australian dollar dipped 0.05 per cent to US$0.6972 after gaining 0.2 per cent the previous day.

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