Stronger dollar down for the week as indices point to inflation spike

  • Dollar index up, yen down against dollar
  • Fed speakers argue for tighter monetary policy
  • UK GDP falls less than expected

NEW YORK, Aug 12 (Reuters) – The dollar rallied on Friday but was forecast for a weekly decline as traders assess improving U.S. inflation data over comments from Reserve officials federal government who warned that the battle against rising prices was far from over.

U.S. import prices fell for the first time in seven months in July on lower fuel and non-petroleum product costs, according to data released Friday in this week’s third report, leaving hear that inflation may have peaked. Read more

Two other key measures of inflation, for consumer prices and producer prices, cooled in July, data showed on Wednesday and Thursday, prompting traders to trim the view that the Fed will raise interest rates by 75 basis points for the third consecutive time when it met in September. Read more

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After four straight days of declines, including falling more than 1% on Wednesday, the dollar rallied against its major rivals on Friday but was still on track for a decline of around 0.84 for the week.

As of 3:00 p.m. Eastern Time (19:00 GMT), the dollar index was up 0.504% at 105.65.

“There’s still a bit of anxiety there, I think, because we need more evidence that inflation is – I’m not going to say falling – but is peaking” , said Amo Sahota, director of Klarity FX.

The greenback’s reversal followed a steady drumbeat from Fed officials who made it clear that they would continue to tighten. San Francisco Federal Reserve Chair Mary Daly said Thursday she was open to the possibility of another 75 basis point hike in September. Read more

“The Fed is going to be inclined to push back on the idea of ​​a premature policy pivot,” said Joe Manimbo, senior market analyst at Convera. “It would threaten to unravel all the hard work they’ve been doing to bring inflation down.”

Traders were pricing in a roughly 42.5% chance of a 75 basis point Fed rate hike in September and a 57.5% chance of 50 basis points.

Kit Juckes, head of FX strategy at Societe Generale, said dollar trading would likely remain “unstable”.

“It is not going to weaken significantly in a straight line because there is always a danger that the market will have to revalue the Fed end funds higher, given that there is still a lot of inflation,” Juckes said.

The dollar gained 0.39% against the Japanese currency, the greenback at 133.495 yen.

The pound fell 0.6% to $1.2141 against the dollar. Data showed UK GDP contracted less than expected in June, although an additional bank holiday was expected to cause a big drag. Read more

The euro fell 0.53% to $1.02625. French inflation rose 6.8% year-on-year in July, while in Spain it was 10.8%, the highest since 1984, the data showed.

The euro was weighed down by Europe’s struggles with the war in Ukraine, the hunt for non-Russian energy sources and a hit to the German economy from low rainfall. Read more

Commerzbank said in a note that it had revised down its forecast for the euro-dollar, as it expects a recession in the euro zone as a base scenario, after having been a “risk scenario”. .

The bank said it expects the euro to fall to $0.98 in December and not recover until later in 2023.

The New Zealand dollar was supported by expectations of a rate hike from the Reserve Bank of New Zealand next week.

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Reporting by John McCrank in New York; additional reporting by Elizabeth Howcroft in London; Editing by Alexander Smith and Alex Richardson

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Carol N. Valencia