© Reuters. FILE PHOTO: An illustration showing $100 banknotes is taken in Tokyo on August 2, 2011. REUTERS/Yuriko Nakao/File Photo
By Amanda Cooper
LONDON (Reuters) – The dollar fell to its lowest levels since last April on Thursday, heading for its biggest weekly decline so far this year, as traders took a surprisingly subdued reading of U.S. inflation as a sign that U.S. rates could peak early. from this month. .
US data on Wednesday showed that inflation slowed much faster than expected last month. That led to the biggest one-day dollar sell-off in five months and left the dollar at its lowest in more than a year against the euro and the British pound, and at its lowest in more than eight years against the Swiss franc.
Core inflation in the US came in at 0.2% in June against market expectations of 0.3%, while core annualized CPI fell to 3%.
Interest rate futures showed that markets had fully priced in another rate hike from the Federal Open Market Committee (FOMC) later this month, but expectations for any further hikes have evaporated.
Whether or not the dollar is on a lower round trip through the rest of the year, according to City Index Markets strategist Fiona Cincotta.
“A lot depends on what we hear from the FOMC in a couple of weeks – that will very much decide the fate of the US dollar and will set the tone for the rest of the summer,” she said.
“If there is any hint of pessimism at the Fed, the dollar bears will jump on that and it will be an excuse to continue lowering the dollar,” she said, adding that she is not convinced the Fed will signal that July will be the final rate hike.
With traders pricing in the high end of US interest rates, the narrowing gap between US borrowing rates and those elsewhere has sent other currencies, particularly the euro, pound and yen, rallying against the dollar.
The euro is heading for a sixth daily gain – its longest run of gains against the dollar this year. It last rose 0.4% to $1.1173, after hitting an earlier high of $1.1175.
It’s time for the euro
George Saravelos, Deutsche Bank (ETR:): The head of global forex research said in a note on Wednesday that after inflation data, it’s time to buy the euro.
“(Wednesday) the US inflation reading is the last clue we have been waiting to recommend buying again. We target $1.15 which is our year-end outlook, but as we have argued previously, we see a range of $1.15-$120 year-end as entirely possible.”
The euro has not touched $1.20 since mid-2021.
Sterling rose 0.6% to $1.3073, poised for a sixth day of gains, after breaking above $1.30 for the first time since April last year a day earlier.
Data on Thursday showed Britain’s economy contracted less than expected in May, reinforcing the notion that the Bank of England can raise interest rates further without hampering growth.
“Today’s numbers were better than expected, but I don’t think they’re enough to get the champagne out yet,” said Cincotta of City Index.
The yen, which has gained 4% in the past five days, held steady against the dollar at 138,565, thanks in part to another drop in US Treasury yields, which the USD/JPY currency pair tends to track closely.
The Swiss franc traded at its strongest level against the dollar since the Swiss National Bank removed the local currency peg in early 2015, leaving the greenback down 0.4% on the day at 0.8634 per franc.
In Scandinavia, where inflation looks tough and central bankers expect more price rises, the Norwegian krone headed for its biggest weekly gain against the dollar this year, up nearly 5% at a five-month high, while the Swedish crown was set for the highest gain. weekly. Weekly gains of 4% and are trading around two-month highs.
“We believe the dollar’s recent weak performance reflects a qualitative shift in market comfort with being short the dollar as the Fed’s final policy rate appears increasingly limited,” said Steve Englander, currency analyst at Standard Chartered (OTC:).