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By xemarketanalysis July 14, 2017 2:53 pm
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    XE Market Analysis: Dollar Slumps as U.S. Data Reduces Rate Hike Prospects

    OVERVIEW

    • U.S. consumer price inflation slows more than expected in June.
    • U.S. retail sales fell for a second straight month in June, and consumer sentiment also weakened.
    • The Eurozone's trade surplus jumped to €21.4 billion in May.

    HIGHLIGHT

    The Dollar has fallen sharply against a number of its G10 counterparts after weaker than expected inflation and retail sales data was released. This added to doubts about U.S. economic growth, and whether the Federal Reserve may raise rates again in 2017. The Australian Dollar has rallied over 1% to its highest levels since April 2016 as risk sentiment was bolstered by the view that U.S. interest rates may remain at the current level for the time being.

    US DOLLAR

    The US Dollar index has fallen to its lowest levels since September after a string of disappointing economic data releases showed inflation cooling to 1.6%, and retail sales falling 0.2% from May. Industrial production was the outlier, rising by a stronger than forecast 0.4% for June, but the bigger focus was on slower inflation and its implications for the Federal Reserve. Yellen’s speech dampened rate hike expectations earlier this week, and today's numbers will add doubts about the need for higher rates. 

    BRITISH POUND

    The Pound has charged higher today on bets that the BoE will raise interest rates at some point this year. While the overall economic data has been soft, the labor market has continued to strengthen, and wage growth picked up in May, supporting those who feel a rate hike is appropriate to ward off inflationary pressures. From its lows versus the Dollar and the Euro, the Pound has risen over 2% against both. 

    EURO

    The Euro is generally weaker after ECB sources said the central bank is keen to keep its asset purchases open-ended, rather than setting a potential date when bond-buying will end, fearing it could cause an unwarranted tightening of financial conditions. The comments come ahead of next Thursday's ECB meeting and a build up of expectation that the central bank will signal they are going to reduce their bond buying program, sending the currency government borrowing costs higher. 

    CANADIAN DOLLAR

    The Loonie is up around 0.5% against its U.S. counterpart today as the pendulum for higher interest rates swings further in Canada's direction. USD/CAD hit fresh 14-month lows, and a test of the 2016 low of 1.2450 is now on the cards in the coming days and weeks.

    AUSTRALIAN DOLLAR

    The Aussie Dollar has hit 8-month highs versus the US Dollar as market pricing for a rate hike over the next 12 months slip below 50% (see highlight). 

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