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FOREX-Dollar bruised after U.S. inflation comes in below expectations

       By Alun John
    HONG KONG, Aug 11 (Reuters) - The euro and Japanese yen were
sitting pretty on Thursday morning after U.S. inflation data
overnight came in less hot than feared and sent the dollar
tumbling.
    U.S. consumer prices were unchanged in July compared with
June, when prices rose a monthly 1.3%. The July result was lower
than expectations due to a sharp drop in the cost of petrol,
causing markets to reposition on hopes that inflation was
peaking.
    If price rises have reached their zenith, investors expect
the U.S. Federal Reserve will not have to maintain its
eye-wateringly steep pace of interest rate hikes, which had been
supporting the dollar.
    The euro was at $1.0297 on Thursday morning, after
jumping 0.84% the day before, its biggest daily percentage gain
since mid-June.
    The yen was at 132.83 per dollar, after the greenback had
fallen 1.6% overnight on the Japanese currency, which is
particularly sensitive to moves in U.S. yields.
    U.S. shares and short dated treasuries also rallied on the
news, which pushed the Nasdaq more than 20% above its
June low and the two-year treasury yield down to
3.2141%, seven basis points lower than its previous close.

    U.S. Treasuries were not trading in early Asia as due to a
holiday in Japan.
    Analysts at Standard Chartered said the decline in the
dollar seemed to be driven by improvements in investors'
attitude to riskier assets - other than the move against the
yen, which they said was more of a yield play.
    "The surprise downward (inflation) move takes out much of
the fear that the market had of a 75bps Fed hike or even
inter-meeting moves," they wrote in a note.
     "We suspect that many investors did not want to put on
positions ahead of an important number that could have gone
either way, so some of the post-CPI moves probably reflect
delayed buying of risk-correlated positions."
    Markets are currently pricing in a 57.5% chance of a 50
basis point interest rate rise at the Fed's next meeting,
according to the CME's Fedwatch tool, though another 75 basis
point increase remains possible.
    Fed policy makers were also warning in public remarks after
the data that they would continue to tighten monetary policy
until price pressures were fully broken.
    The Australian dollar, another commonly used proxy
for risk sentiment, was at $0.7077 after a 1.7% overnight gain,
and sterling was on the front foot at $1.2207.
    Bitcoin, which has also traded in line with risk
assets, was testing its recent highs at $24,000.


    ========================================================
    Currency bid prices at 0109 GMT
 Description      RIC         Last           U.S. Close  Pct Change     YTD Pct     High Bid    Low Bid
                                              Previous                   Change
                                              Session
 Euro/Dollar                  $1.0295        $1.0299     -0.04%         -9.44%      +1.0303     +1.0294
 Dollar/Yen                   132.8700       132.8900    -0.11%         +15.42%     +132.9450   +132.7500
 Euro/Yen         Dollar/Swiss                 0.9428         0.9430      -0.02%         +3.36%      +0.9429     +0.9424
 Sterling/Dollar              1.2205         1.2217      -0.08%         -9.74%      +1.2220     +1.2206
 Dollar/Canadian              1.2781         1.2778      +0.03%         +1.09%      +1.2782     +1.2774
 Aussie/Dollar                0.7076         0.7082      -0.09%         -2.67%      +0.7088     +0.7075
 NZ                           0.6401         0.6404      -0.05%         -6.48%      +0.6412     +0.6401
 Dollar/Dollar


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 (Reporting by Alun John)

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