The U.S. dollar edged back Thursday, with a key gauge on course for a second straight loss, as April consumer price inflation came in weaker-than-expected.
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What are currencies doing?
The ICE U.S. Dollar Index DXY, -0.25% which measures the buck against a half-dozen counterparts, was down 0.3% at 92.736, and pulling further pulling away from a four-month high reached on Tuesday.
The broader WSJ Dollar Index BUXX, -0.25% which tracks the U.S. unit’s strength against 16 currencies, shed 0.4% to 86.33.
The British pound GBPUSD, -0.5610% bought $1.3510, slipping from $1.3547 late Wednesday in New York.
The euro EURUSD, +0.2700% traded hands at $1.1918, up from $1.1853 late in the previous session. The greenback was weaker against the Japanese yen USDJPY, -0.21% buying ¥109.55 versus ¥109.74 late Wednesday.
Against the Canadian dollar USDCAD, -0.4746% the buck fell to C$1.2787 from C$1.2854.
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What is driving the market?
The dollar trended lower for a second day in a row on Thursday, as traders assessed what the weaker-than-expected April inflation reading could mean for the pace of the Federal Reserve’s monetary-policy normalization.
Inflation grew 0.2% last month, undercutting the MarketWatch consensus forecast of 0.3%. Core inflation, which strips out volatile components such as gas, came in at 0.1%, compared with 0.2% expected.
The Federal Reserve is on track to raise interest rates three times in 2018, in accordance with its dot plot, having completed the first hike in March. Market expectations are still centered on 3 or 4 rate increases this year though, leading market participants to cling to every piece of data for signs that the Fed could step up its pace.
Read: CPI may give fuel to those at Fed who want faster rate increases
Elsewhere, the Bank of England left interest rates unchanged at 0.5%, in line with expectations. Monetary policy committee members said the inflationary impact the weak British pound has had, leaving inflation at 2.5% and above the central bank’s 2% target.
In emerging markets, Malaysia saw the resurgence of retired prime minister 92 year-old Mahathir Mohamad who was elected to serve once again. He would be the world’s oldest elected official. Malaysian assets rallied in response, with the ringgit USDMYR, -2.3604% rallying 2.4% against the dollar. One buck last bought 3.9505 ringgit.
What are strategists saying?
“The 3% month-on-month rise in gasoline prices pushed headline inflation to a 14-month high of 2.5%, but the more muted 0.1% monthly gain in core CPI suggests that the recent surge in underlying inflation is facing,” wrote Michael Pearce, senior U.S. economist at Capital Economics.
“Even so, core inflation on the Fed’s preferred PCE measure has still accelerated faster than Fed officials anticipated just a few months ago, which will keep the Fed on track to raise interest rates again in June.”
“The dollar revival story is based fundamentally on U.S. growth and inflation picking up, especially on the back of fiscal stimulus. The problem is that the most important indicator of such a pickup, namely the U.S. yield curve, does not share the optimism. If the yield curve proves to be correct, then the dollar bounce is likely to be transient,” said analysts at Société Générale in a note.
What economic reports are in focus?
Jobless claims for the week ended May 5 came in at 211,000, compared with consensus forecasts of 215,000, marking the lowest reading since 1969.