Dollar falls versus yen after smaller-than-expected rise in US inflation, euro eases
FILE PHOTO: A woman counts U.S. dollar bills at her home in Buenos Aires, Argentina August 28, 2018. REUTERS/Marcos Brindicci/File Photo
NEW YORK/LONDON, Dec 18 : The dollar lost ground against the Japanese yen and Swiss franc on Thursday after data showed a lower-than-expected rise in U.S. inflation, while the euro eased after the European Central Bank held interest rates steady.
The U.S. Consumer Price Index rose 2.7 per cent year-on-year in November, according to Labor Department data, compared with a 3.1 per cent increase forecast by economists polled by Reuters.
The dollar weakened 0.12 per cent to 155.50 against the Japanese yen and was down 0.14 per cent to 0.79405 against the Swiss franc.
"The margin of error shouldn't be this great and it is questionable whether what we got in this release is going to make its way into the more traditional data collection discussion," said Marvin Loh, senior global market strategist at State Street in Boston.
"One of the things that ends up being a challenge in terms of changing expectations significantly is that we're already pricing in a Fed that gets to neutral within the next 12 months. So you either need to aggressively push against the neutral and/or start believing that there's a recession that will make you go below neutral and I don't think we're anywhere near there," Loh said.
The longest federal government shutdown in U.S. history had impacted data collection for the inflation report. The Federal Reserve tracks the Personal Consumption Expenditures Price Index for its 2 per cent inflation target.
President Donald Trump said on Wednesday the next Fed chair will be someone who believes in lower interest rates "by a lot".
All of the known candidates - White House economic adviser Kevin Hassett, former Fed Governor Kevin Warsh and current Fed Governor Chris Waller - advocate for interest rates to be lower than they are now.
CENTRAL BANK MOVES
The euro edged lower in choppy trading after the European Central Bank kept its policy rates steady and took a more positive view on a euro zone economy that has shown resilience to global trade shocks.
The euro was last down 0.14 per cent at $1.17240 against the dollar.
"Today's meeting offered no new information to change our view on the most likely policy path or the surrounding risk balance," Barclays analysts led by Mariano Cena said in an investor note. "We continue to expect the ECB to remain on hold for the next two years and see the risk tilted towards lower, not higher, policy rates over our forecast horizon."
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, edged up 0.06 per cent to 98.435.
Sterling rose after the BoE delivered its fourth rate cut this year, although markets pushed back their expectations for further easing, with the next cut not fully priced until June, from April prior to the decision.
Sterling strengthened 0.09 per cent to $1.33846.
"Interest rate markets have reduced their bets on further easing, likely on account of both the finely balanced nature of upcoming decisions and the Governor's comment that room for further reductions is becoming more limited. Two-year sterling swap rates are roughly five basis points higher," said Tom Priscott, FX trader at Investec.
"The pound may have further room for upside as traders recalibrate their outlooks for 2026 through the afternoon," Priscott said.
The Swedish and Norwegian central banks both kept their main interest rates on hold, in line with expectations. The Swedish crown was last down 0.29 per cent at 10.8855 per euro, while Norway's crown was last down 0.52 per cent at 11.9173 per euro.
The Bank of Japan looks almost certain to raise short-term interest rates on Friday to 0.75 per cent from 0.5 per cent as high food costs keep inflation above the central bank's 2 per cent target.
