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USD at 15-month low on easing inflation firms rate

July 14, 2023 at 2:53 pm | Economic Affairs

July, 14(Agencies) — US dollar hovered at 15-month lows on Friday after a steep dive overnight following markets wagered Federal Reserve was close to the end of its rate hike cycle due to easing inflation.
Dollar index, which measures the US currency against six major rivals, stood at 99.71 in early Asian hours, its lowest since April 2022. The index is on course for its worst week since November.
US producer prices barely rose in June and the annual increase in producer inflation was the smallest in nearly three years, data showed on Thursday, a day after consumer prices rose modestly last month as evidence mounts that the world’s largest economy had entered a phase of easing inflation.
“Markets are generally pretty pleasant with the lower inflation data, because lower inflation together with the still resilient labour market supports the narrative of a soft landing in the US economy,” said Carol Kong, currency strategist at Commonwealth Bank Of Australia in Sydney.
“But we still maintain our view that the US will enter recession later this year because of the impact of past and potentially future interest rate hikes.”
Markets are pricing in a 92% chance of a 25 basis point hike from the Fed later this month, CME FedWatch tool showed, but no more for the rest of the year.
Data on Thursday also showed that the number of Americans filing new claims for unemployment benefits unexpectedly fell last week, indicating that the labour market remains tight even as job growth is slowing.
Ryan Brandham, head of global capital markets, North America, at Validus Risk Management, said the data on weekly jobless claims and producer prices are supportive of the soft landing.
“If the Fed wishes to hike rates again later this month … it will be reassured by the jobs data.
Although the recent trend of lower inflation may be encouraging, it probably won’t be sufficient to change the committee’s decision.“
Still, Fed officials remain cautious, with Federal Reserve Governor Christopher Waller saying he’s not ready to call an all clear on US inflation and favours more rate rises this year.
Meanwhile, the Australian dollar eased 0.16% to $0.688 after Michele Bullock was appointed head of Australia’s central bank on Friday, becoming its first female governor as it undertakes a sweeping reorganisation.

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