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Weekly roundup: US dollar flounders after US inflation slides

currency-newsWeekly roundup: US dollar flounders after US inflation slides
A quiet start to the week saw the US dollar able to gain on the back of the previous week’s strong labour market data, which kept markets betting - albeit only marginally - that December would see another interest rate hike.

Those hopes rose even further on Tuesday after confident comments from Federal Reserve official John Williams. He stated that he still expects another interest rate hike this year, and that the current weak pace of inflation was likely to be temporary. In addition, he claimed in the next few months the Fed would start disposing of some of its huge US$4.5 trillion pile of government assets amassed through quantitative easing.

Federal Reserve Chair Janet Yellen made two high-profile public appearances last week in front of US Senate committees. She was more cautious than had been hoped for; although she remained confident on the strength of the US economy, she was more concerned by the weakness in inflation that John Williams had been on Tuesday. Yellen even suggested that continued sluggish inflation could give the Federal Open Market Committee (FOMC) reason to slow the pace of interest rate hikes.

Friday’s data significantly dented the odds of an interest rate hike during the remainder of the year. Consumer prices grew -0.1% less-than-expected during June, climbing 1.6% on the year. Retail sales fell -0.2% instead of growing 0.1%. As Janet Yellen had only just warned about the impact of weak consumer prices on the inflation outlook, the US dollar was quickly sold.

The coming five days are extremely quiet in terms of influential data, which could see USD largely reacting to political developments, or any rumours regarding the outlook on interest rates. The most impactful data will likely be Thursday’s initial and continuing jobless claims figures, but even these would have to clock in significantly outside of their usual range to cause any real turbulence.
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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