Dollar back near breakeven, following cooler-than-expected inflation data
The U.S. dollar reversed Friday’s earlier losses as broad financial market stability followed President Trump’s updated Iran policy.
The currency had slumped earlier in the session on the back of lackluster U.S. inflation data. The data are seen highlighting stubbornly low inflation and reinforcing some views that the Federal Reserve will adopt a measured approach to its pace of monetary-policy normalization.
Where are currencies trading?
The ICE U.S. Dollar Index DXY, -0.05% which gauges the dollar against six other currencies, was little changed at 93.092, on course for a week-on-week loss of 0.7%—its first in five weeks. A broader buck indicator, the WSJ Dollar Index BUXX, -0.21%fell 0.2% to 86.28, down 0.8% on the week.
The pound GBPUSD, +0.1734% traded at $1.3292, compared with $1.3262 late Thursday in New York. Sterling had climbed to an intraday high of $1.3324 after German newspaper Handelsblatt late Thursday reported that the European Union may offer a two-year Brexit transition deal to Britain. Prior to that move, the pound hadn’t traded above the $1.33 mark since Oct. 2, according to FactSet data. On the week, sterling gains 1.7%.
The euro EURUSD, -0.0930% slipped to $1.1819, little changed from $1.1832 late Thursday, as the buck regained strength. Still, for the week, the euro raked in a 0.7% gain.
Against the yen USDJPY, -0.41% the dollar fell to ¥111.88, marking its lowest level since Sept. 26, pulling back from ¥112.29 late Thursday, and putting the pair on track for a 0.7% loss.
Similarly, the greenback hit a multiday low against the Swiss francUSDCHF, -0.1128% falling to 0.9740 francs, compared with 0.9756 francs. On the week, the dollar slipped 0.1% against the Swiss currency.
What is driving the market?
The dollar and stocks gained after President Donald Trump outlined his administration’s Iran policy and decertified the Obama administration’s nuclear agreement. Speaking at the White House, Trump said “we cannot and will not” certify the Iran deal, and announced he has directed the Treasury to sanction the Revolutionary Guard Corps — something he called a “long overdue step.” The strategy Trump announced Friday doesn’t kill the Iran deal, but instead leaves its future up to Congress.
Earlier, the dollar fell when a report showed that consumer prices rose 0.5% in September, compared with the MarketWatch consensus forecast of 0.6%. Core inflation meanwhile stood at 0.1%, compared with the 0.2% consensus estimate.
On Thursday, Federal Reserve Gov. Lael Brainard said Fed officials are struggling to understand a “material” decline in the trend of inflation.
Even though a December interest-rate increase by the Fed appeared baked into trading levels, the new data suggests that the dovish central bank members may find fresh support for arguments to take a go-it-slow approach to rate increases.
Meanwhile, in Europe, the market digested rumors that the European Central Bank may extend its bond-buying program for nine months but at a lower monthly pace from its current pace of €60 billion a month, according to Reuters. Bloomberg reported that the ECB is considering cutting monthly bond buying by at least half, beginning in January.
What are analysts saying?
“What [was[ weighing on the dollar is the softer core inflation data,” said Viraj Patel, FX strategist at ING, adding that the headline data were expected to be distorted by the effect of the hurricanes that hit the U.S. in September.
The dollar also took cues from Treasurys, with the 10-year TMUBMUSD10Y, -1.93% slipping to yield 2.288% from 2.323% before.
Still, a rate increase by the Fed was seen as likely in December. “If we get continuously bad data over the next weeks now there will be more downside risk,” Patel said.
Which other data were in focus?
Retail sales rose 1.6% in September, missing estimates of 1.9%. Excluding cars, sales rose 1%, versus the 0.8% MarketWatch forecast.
Consumer sentiment in October rose to its highest level since early 2004 at 101.1, compared with 95.1 in September—beating the MarketWatch consensus estimate of 95.