The dollar rallied on Friday but was set for a weekly decline as traders weighed improving US inflation data against comments from Federal Reserve officials who cautioned a fight against rising prices.
US import prices fell for the first time in seven months in July, at lower costs for both fuel and non-fuel products, data showed on Friday, with a third report this week indicating that inflation may have topped. Is.
Another two key inflation measures, consumer prices and producer prices, cooled in July, data showed on Wednesday and Thursday, prompting traders to back the idea that the Fed will raise interest rates by 75 basis points for the third time in a row. will increase when this meeting takes place. september.
After four straight days, including a drop of more than 1% on Wednesday, the dollar rallied against its major rivals on Friday, but was still on track for a decline of about 0.84 for the week.
At 3:00 p.m. Eastern Time (1900 GMT), the dollar index was up 0.504% at 105.65.
“There’s still a little bit of concern there, I believe, because we need to see more evidence that inflation is — I wouldn’t say low — but extreme,” said Amo Sahota, director of Clarity FX.
The greenback’s turnaround followed a steady drumbeat from Fed officials, who made it clear they would continue to tighten. Mary Daly, chair of the San Francisco Federal Reserve Bank, said on Thursday she was open to the possibility of a further 75 basis points increase in September.
“The Fed is inclined to backtrack against the notion of a premature policy pivot,” said Joe Manimbo, senior market analyst at Convera. “That would risk exposing all the hard work they’ve done to beat inflation.”
Traders were pricing in a 42.5% probability of a 75 bps hike in the Fed rate in September and a 57.5% probability of 50 bps.
Kit Jux, head of FX strategy at Societe Generale, said trading in the dollar is likely to remain “choppy”.
“It’s not going to weaken significantly in a straight line because there’s still a risk that the market will have to overvalue terminal fed funds, given that there’s still a lot of inflation out there,” Jux said.
The dollar was up 0.39% against the Japanese currency, with the greenback at 133.495 yen.
The British pound fell 0.6% to $1.2141 against the dollar. Data showed UK GDP contracted less than forecast in June, even though a major stretch was expected due to an additional public holiday.
The euro was down 0.53% at $1.02625. French inflation in July stood at 6.8% year-on-year, compared to 10.8% for Spain, the highest since 1984, the data showed.
The euro has been weighed down by a hit to the German economy from Europe’s conflicts with the war in Ukraine, exploration of non-Russian energy sources, and low rainfall.
Commerzbank said in a note that it has revised down its euro-dollar forecast, as it expects a euro-zone recession as a base scenario, which was previously a “risk scenario”.
The bank said it expects the euro to fall to $0.98 in December and not recover until 2023.
The New Zealand dollar was lifted next week on expectations of a rate hike by the Reserve Bank of New Zealand.
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