US dollar retreats as inflation runs warm, jobless claims tick higher
FILE PHOTO: An employee holds U.S. dollar bank notes at a money changer in Jakarta, Indonesia, April 9, 2025. REUTERS/Willy Kurniawan/File Photo
NEW YORK : The U.S. dollar weakened against major currencies such as the euro and yen on Thursday, as modestly hotter August inflation data and weaker-than-expected initial jobless claims reinforced the view that the Federal Reserve will resume cutting interest rates next week.
In afternoon trading, the dollar was down 0.3 per cent against the yen at 147.09 yen, while the euro rose 0.4 per cent to $1.1738. As a result, the dollar index, a measure of the greenback's value against six major currencies, dipped 0.3 per cent to 97.51.
The euro was also helped in part by diminished expectations of further cuts in borrowing costs, after the European Central Bank left interest rates unchanged on Thursday as expected and maintained an upbeat view on growth and inflation.
U.S. economic data, however, was the more predominant currency driver.
Data showed U.S. consumer prices rose more than expected in August while the annual increase in inflation was the largest in seven months. The Consumer Price Index increased 0.4 per cent last month after increasing 0.2 per cent in July, the Labor Department's Bureau of Labor Statistics said.
In the 12 months through August, the CPI advanced 2.9 per cent, the largest increase since January, after climbing 2.7 per cent in July.
"The CPI didn't come in as high as the market expected. Ultimately, the biggest concern ... is that the dovishness that comes with the weak jobs numbers is going to be unwound if CPI accelerates more than expected," said Eugene Epstein, head of trading and structured products, North America, at Moneycorp in New Jersey.
"But that didn't really materialize. Everybody would prefer CPI to be softer, but the point is, the data does not really change the course or move the needle for Fed rates."
More importantly, initial claims for state unemployment benefits jumped 27,000 to a seasonally adjusted 263,000 for the week ended September 6, data showed. Economists polled by Reuters had forecast 235,000 claims for the latest week.
CPI OVERSHADOWED BY JOBLESS CLAIMS?
"For the first time in a long time, CPI is being overshadowed on its release day by another data series," wrote Josh Jamner, senior investment strategy analyst at ClearBridge Investments in an email.
He noted that the spike in initial jobless claims to the highest level in four years had helped briefly push the 10-year Treasury yield below 4 per cent, despite the larger-than-expected increase in the consumer price index.
"This dynamic illustrates the Fed's focus on the 'maximum employment' half of the dual mandate, with today's inflation print not hot enough in our view to derail a 25 basis point interest rate cut at next week's FOMC meeting."
Attention on the labor market has intensified after two poor U.S. jobs reports over the last few days. The non-farm employment number for August showed just 22,000 jobs created compared with forecasts of 75,000, while payrolls were revised downwards by 911,000 for the year ending in March.
Following Thursday's data, fed funds futures are pricing in a 91 per cent chance of a 25 bp cut this month and a 9 per cent chance of a 50 bp decline, according to the CME's FedWatch. That was unchanged from levels late on Wednesday.
In other currency pairs, the euro gained 0.2 per cent against the yen to 172.78 yen, and was flat against sterling at 86.14 pence.
ECB President Christine Lagarde told a press conference after the bank held interest rates steady at 2 per cent that the euro zone continues to be in a "good place," adding that inflation is where the ECB wanted it to be.
The euro is stabilizing after a two-day streak of declines as geopolitical tensions continue on the EU's eastern flank. Poland said it shot down suspected Russian drones in its airspace on Wednesday with the backing of aircraft from its NATO allies, the first time a member of the Western military alliance is known to have fired shots during Russia's war in Ukraine.
Elsewhere, the dollar fell 0.5 per cent versus the Swiss franc to 0.7956 , while sterling gained 0.4 per cent versus the greenback to $1.3578 .
Also seemingly unnoticed was news that Stephen Miran moved closer to becoming a Fed governor, furthering U.S. President Donald Trump's effort to exert more direct control over interest rate policy. The Senate Banking Committee voted to advance Miran's nomination, though lawmakers involved said it is far from certain if the process can be completed in time for him to participate in the coming meeting.
Currency
bid
prices
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p.m. GMT
Descript RIC Last U.S. Pct YTD High Low
ion Close Chang Pct Bid Bid
Previous e
Session
Dollar 97.504 97.788 -0.28 -10.13 98.088 97.
index per cent per cent 473
Euro/Dol 1.1737 1.1695 0.37 per cent 13.38 per cent $1.174 $1.
lar 5 166
1
Dollar/Y 147.09 147.34 -0.15 -6.5 per cent 148.09 147
en per cent .1
Euro/Yen 172.66​ 172.45 0.12 per cent 5.78 per cent 173.05 172
.37
Dollar/S 0.7957 0.7994 -0.46 -12.32 0.8009 0.7
wiss per cent per cent 948
Sterling 1.3579 1.353 0.37 per cent 8.58 per cent $1.358 $1.
/Dollar 3 349
5​
Dollar/C 1.3835 1.3862 -0.18 -3.78 per cent 1.389 1.3
anadian per cent 827
Aussie/D 0.6661 0.6614 0.73 per cent 7.67 per cent $0.666 $0.
ollar 4 659
1
Euro/Swi 0.9339 0.9344 -0.05 -0.57 per cent 0.9354 0.9
ss per cent 335
Euro/Ste 0.8641 0.8643 -0.02 4.45 per cent 0.8662 0.8
rling per cent 636
NZ 0.5973 0.5942 0.55 per cent 6.76 per cent $0.597 0.5
Dollar/D 6 915
ollar
Dollar/N 9.8568​ 9.9204 -0.64 -13.28 9.9567 9.8
orway per cent per cent 538
Euro/Nor 11.5693 11.6085 -0.34 -1.7 per cent 11.636 11.
way per cent 563
Dollar/S 9.3065 9.3409 -0.37 -15.53 9.3863 9.3
weden per cent per cent 063
Euro/Swe 10.9228 10.927 -0.04 -4.75 per cent 10.960 10.
den per cent 6 923
