U.S. Dollar Under Pressure After Inflation Data Miss and Other Top Forex News

The U.S. dollar came under pressure on Wednesday after official data showed that producer price inflation failed to meet expectations last month.

The U.S. Department of Labor reported that the producer price index came in flat for July, missing expectations for a 0.3% increase after a 0.8% increase in June. The core producer price index did rise slightly, up 0.1%, but missed forecasts for a 0.2% increase.

The news proved to be a disappointment for investors, who were hoping for strong data to confirm the U.S. economy has recovered enough to persuade the Fed to begin phasing out its $85 billion-a-month asset purchase program in September.

The dollar index, which tracks the performance of the dollar vs a basket of six other major currencies, dipped 0.02% to 81.75 on the news.

In Europe the euro fell slightly against the dollar despite data showing that the eurozone returned to growth in the second quarter, emerging from an 18-month recession.

The European economy expanded by 0.3% in the three months to June. Economists had expected quarter-on-quarter growth of 0.2%. It was the fastest quarterly expansion since the first quarter of 2011.

France’s economy also expanded 0.5% in the three months to June, following two consecutive quarters of contraction, while Germany’s economy expanded by a larger than forecast 0.7%.

Despite the news the euro remained flat for most of the session, with EUR/USD ending the U.S. session down 0.02% to 1.3260. Investors appear to still be cautious about the strength of recovery in the eurozone.

In the U.K. sterling was boosted after official data showed that the number of people claiming unemployment benefit in the U.K. remained unchanged at 7.8% in June, in line with expectations.

The news meant cable strengthened against the dollar, with GBP/USD rising 0.40% to 1.5510 at the close of the U.S. session.

The dollar was also broadly lower against its Australian, New Zealand and Canadian cousins, with AUD/USD gaining 0.29% closing at 0.9138, NZD/USD rising 0.85% to 0.8031 and USD/CAD falling 0.14% to 1.0330.

The Kiwi was boosted after official data from New Zealand, showed that retail sales rose 1.7% in the second quarter, beating expectations for a 1.4% increase, while core retail sales rose by a larger-than-forecast 2.3%.

More Coverage of Today’s Top Story

  • WSJ: Eurozone returns to growth, but malaise lingers. – The eurozone’s return to slow growth—confirmed by Wednesday’s data showing a 0.3% economic expansion in the second quarter—is likely to encourage European politicians to claim that the bloc’s crisis is ending. But most economists say the recovery is too sluggish to overcome the deep problems ailing the euro zone any time soon.
  • FT: Sterling climbs on labour market data. – Sterling climbed after the number of benefit claimants in the UK fell sharply in June while one member of the Bank of England’s Monetary Policy Committee raised concerns over inflation.

More Top Stories:

FT: Yen bears enduring a frustrating wait. – After the dollar broke through Y100 in May, many analysts predicted that the Japanese unit would trundle toward Y110 as the year progressed. At mid-session on Wednesday, it was Y98.25. Traders continue to bet on further yen declines.

FT: Minutes reveal BoE split on forward guidance. – Mark Carney, the new Bank of England governor, faced dissent from within the Monetary Policy Committee on forward guidance, his big idea to return the UK economy to full health.

Dean Popplewell: EUR gains on dollar but downside risk remains. – The prospect of a neutral to slightly dovish European Central Bank and of reduced stimulus from the U.S. Federal Reserve in theory should be able to cap any EUR upside potential.

Ralph Shell: Is the euro rally over? – For the past five weeks the U.S. dollar has lost to the euro. From a low around 1.2755, the market climbed to almost 1.34. Generally the reason given for the rally, was things were not so bad, and the European debt crises were over. Next the confident euro bulls asserted, the recession was over, and we were on the cusp of positive growth, albeit small. But is this bullish chatter really worth a 640 pip rally?

Bloomberg: Canadian dollar rises from week low as Europe lifts risk assets. – The Canadian dollar gained from its lowest level in almost a week after a report showed the euro area’s economy emerged from a record-long recession, boosting prospects for global growth and Canada’s commodity exports.

The Australian: Australian dollar lower after strong U.S. retail data. – THE Australian dollar has fallen back below US91c after strong US July retail figures helped the greenback rally.

The Australian: NZ dollar weakens on U.S. retail growth. – The New Zealand dollar weakened as investors bet retail sales growth in the US suggests a revival in the world’s largest economy which will prompt the Federal Reserve to start tapering its monetary stimulus next month.

MarketWatch: Gold futures log gains after 1% loss. – Gold futures edged higher Wednesday but gains were modest as the market came off a sharp decline in the previous session.

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