© Reuters. FILE PHOTO: An illustration showing a US $100 banknote is taken in Tokyo on August 2, 2011. REUTERS/Yuriko Nakao/File Photo
Written by Ankur Banerjee and Joyce Alves
SINGAPORE/LONDON (Reuters) – The dollar hovered near a 15-month low on Friday and was poised for its biggest weekly decline since November, after weak U.S. inflation data fueled investor bets that the Federal Reserve was nearing the end of its interest rate hike cycle. .
Data on Thursday showed that US producer prices barely rose in June and the annual increase in producer inflation was the smallest in nearly three years, a day after data showed consumer prices rose modestly last month.
“Markets in general are quite pleasant with low inflation data, because low inflation coupled with a still resilient labor market supports a soft landing narrative in the US economy,” said Carol Kong, currency analyst at the Commonwealth Bank of Australia in Sydney.
“But we still hold to our view that the US will enter a recession later this year due to the impact of past and possible future interest rate increases.”
The euro, which measures the greenback against six peers, rose 0.03% to 99.803, after touching a 15-month low of 99.574 previously. The index fell 2.4 percent for the week, its largest weekly drop in eight months.
The CME FedWatch tool showed that markets are still pricing in a 95% chance of a 25 basis point hike from the Fed later this month, but no more for the rest of the year.
Investors have been betting on the dollar turning around for months, with short positions more than doubling over the month through July 7, according to data from the CFTC, although they are still far from levels in 2021.
Fed officials remain cautious, with Fed Governor Christopher Waller saying he is not ready to say everything about US inflation and would prefer a rate hike this year.
Against dollar weakness, the euro touched a fresh 16-month peak of $1.1243 in Asian hours before settling at $1.1225.
“It (the euro) took off on the back of US anti-inflationary bets and massive unwinding of dollar positions. Our short-term fair value model shows that the pair (euro/dollar) has now entered overvaluation territory,” said Francesco Pessol, ING’s forex strategist .
The Swedish krona fell 0.3% against the dollar to 10.2320, away from its highest level in two months against the dollar on Thursday, on the back of data showing that inflation in Sweden is decelerating at a slower rate than expected. The Swedish currency is still on track for its biggest weekly gain since March 2009, up 5.4%.
Consumer prices in Sweden, measured at a fixed interest rate, rose 0.9% in June from the previous month, and were up 6.4% from the same month a year ago. A Reuters poll had expected inflation at 6.1 percent.
Elsewhere, the Australian dollar stabilized after Michelle Bullock was appointed head of the Central Bank of Australia on Friday, becoming the first woman to hold the position of governor at the bank as it undertakes a sweeping reorganization.
The Japanese yen rose 0.29% to 137.65 per dollar and is on track for its best week against the greenback since January.
