Dollar Weakens

The dollar fell slightly in early European trading Thursday, as hints of slowing inflation in the United States eased pressure on the Federal Reserve to begin tapering its mammoth bond-buying program.

The Dollar Index, which measures the value of the U.S. dollar against six other currencies, was 0.1 per cent lower at 92.898, down from the day’s high of 93.195.


USD/JPY was unchanged at 110.41, having fallen from a five-week high of 110.80 hits overnight. EUR/USD was marginally higher at 1.1741, having failed to a four-month low of 1.1706, and the risk-sensitive AUD/USD slipped 0.1 per cent to 0.7365.

GBP/USD fell to 1.3868 even though UK GDP increased by 4.8 per cent in the second quarter, a significant rise over the first quarter’s 1.6 per cent loss.

This report expects to rekindle discussions about the Bank of England purchasing fewer assets. USD/TRY declined 0.2 per cent to 8.6079 ahead of the Turkish central bank’s meeting later Thursday. After Turkish consumer inflation rose more than predicted in July, the bank largely expected to maintain its benchmark interest rate at 19 per cent, much to the chagrin of President Recep Tayyip Erdogan. The Turkish central bank boosted its inflation prediction in its most recent quarterly report on July 29. But it forecasted a sharp decline in price increases in the fourth quarter.

The U.S. Consumer Price Index

The consumer price index in the United States rose 0.5 per cent last month after increasing 0.9 per cent in June. Thus, marking the most significant reduction in the month-to-month inflation rate in 15 months. The CPI grew by 0.3 percent, excluding volatile food and energy components, increasing by 0.9 percent in June. That was the weakest growth in four months and the first slowdown in the core CPI since February.

Fed Chair Jerome Powell has consistently stated that robust inflation statistics will be transitory once the economy reopens, reducing the need to tighten monetary policy soon. These figures will provide some support for this perspective.

However, the greenback’s fall remains limited. Many experts still expect the Fed to announce a withdrawal of stimulus this year, potentially as soon as next month. Prices continued to rise from the previous month. Moreover, CPI growth remained stable at 5.4 per cent year on year, said Kathy Lien, an analyst at B.K. Asset Management.

This viewpoint was bolstered up Wednesday by remarks from Kansas City Fed President Esther George. He said that the bar for decreasing the central bank’s bond-buying program might fulfil given current inflation levels and recent job market gains.

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