Dollar pinned by easing Fed rate hike expectations

Big 5

The dollar was softer on Monday, pegged back by sluggish U.S. data that tempered expectations of a Federal Reserve interest rate hike this year.

The U.S. currency was 0.2 percent lower at 101.12 yen JPY= after losing 0.6 percent on Friday, when retail sales and producer prices came in weaker than expected. The euro was up 0.1 percent at $1.11675 EUR=, having risen 0.2 percent on Friday.

The dollar index was a touch weaker at 95.653 .DXY after dropping to 95.254 on Friday, its lowest since August 3.

U.S. Treasury yields also slid on Friday, with the 10-year yield US10YT=RR falling 5 basis points to a two-week low. It traded close to that at 1.501 percent on Monday.

“After the disappointing retail sales and what our economists see as downside risks to July U.S. consumer price inflation print on Tuesday, we see very limited scope for dollar strength against the euro and the yen,” said Petr Krpata, currency strategist at ING in London.

U.S. consumer inflation is forecast at zero month on month for July, down from 0.2 percent in June, and annual headline inflation is also expected to slow amid lower oil prices. ECONUS. Last week, productivity numbers indicated subdued inflationary pressures, all of which underpinned expectations that the Fed will be in no hurry to raise rates.

Federal funds futures implied traders saw a 43 percent chance the central bank would increase rates at its December policy meeting, down from 47 percent before Friday’s data.

“It is difficult for the dollar to rise when long-term U.S. Treasury yields head in the opposite direction, and yields look to remain capped for a while,” said Koji Fukaya, president of FPG Securities in Tokyo.

Currency markets showed little reaction to data on Monday showing Japan’s economy expanded 0.2 percent year on year in the second quarter, well below expectations for 0.7 percent. ECONJP.

The Australian dollar was 0.3 percent higher at $0.7668 AUD=D4, having risen to a 3-month high of $0.7760 last week thanks in part to the country’s relatively higher debt yields.

Source: Reuters