The US dollar hovered near its lowest level in about a month on Thursday, after weak inflation data reinforced expectations that the Federal Reserve might hold off on raising interest rates, while the escalating standoff in the Middle East kept inflationary concerns alive.
The dollar fell against the Japanese yen for the third consecutive session, dropping 0.1 percent to 162.075 yen, while the euro rose 0.1 percent to $1.1472, its highest level in a month.
The British pound held steady near a two-month high at $1.354, amid market expectations that the incoming British Prime Minister will select a Chancellor of the Exchequer who adopts a conservative fiscal approach.
In contrast, both the Australian and New Zealand dollars edged down by about 0.1 percent to $0.6995 and $0.5842, respectively.
The dollar index, which measures the performance of the greenback against a basket of six major currencies, stabilized at 100.47 points, near its lowest level since June 18, after losing 0.8 percent over the previous two sessions and heading for a weekly loss.
This came after US data showed that producer prices in June fell unexpectedly, recording their largest decline in 14 months, which strengthens signs of slowing inflation prior to the recent wave of escalation in the Middle East.
The data, along with a soft consumer price inflation reading and slowing job growth in June, also boosted expectations that rate hikes would be ruled out at the Federal Reserve meeting this month.
The probability of a rate hike in July fell to 11 percent, compared to 45 percent at the beginning of the week, while markets still price in an almost even chance of a 25-basis-point rate hike in September, according to interest rate futures pricing.
Bosco Woo, investment strategist at the Bank of East Asia, said: “The dollar’s recent weakness seems to be a correction after an earlier rally, as markets had overpriced the likelihood of a July rate hike, whereas data now indicates that inflation is slowing down rapidly.”
He added that the monetary tightening path remains intact, as one month of weak inflation data is not enough to confirm a sustained trend, and escalating tensions in the Middle East could limit any further decline in the dollar.
Meanwhile, the intensifying standoff between the United States and Iran kept oil prices near their highest levels in a month, continuing to fuel concerns over inflation.
On Wednesday, the United States launched strikes targeting Iranian coastal defenses and missile sites after reimposing a naval blockade on Iranian ports, while Iran threatened to halt more regional energy exports, asserting that it is fighting an “existential war” with the United States.
Oil prices rose on Thursday for the fourth consecutive session, with Brent crude trading near its highest level in a month at $85.28 a barrel.
(Agencies)
