Greenback steadies after benign US inflation curbs Fed rate hike bets

The US greenback stabilized on Thursday (Aug 13) following a lackluster report on US consumer inflation, which decreased the likelihood of a September rate hike from the Federal Reserve. The currency rose 0.4 per cent this week, marking its first weekly gain in three weeks, but remained within a narrow price range typical for August.

In line with expectations, US consumer prices rose by 0.1 per cent in July, meeting economist forecasts, which led traders to lower the probability of a September hike to 40 per cent from 54 per cent the previous week, according to CME Group’s FedWatch.

Looking ahead, wholesale inflation, tracked by the producer price index, is anticipated to have moderated to 4.9 per cent in July, down from 5.5 per cent in June, before the core personal consumption and expenditures index, usually the Fed's preferred inflation marker, is released on Aug 26. Fed Chair Kevin Warsh has hinted at a more comprehensive approach to inflation, looking beyond core PCE as the primary inflation benchmark.

CIBC Capital Markets' head of G10 FX strategy, Jeremy Stretch, stated that the market has good reasoning to maintain low Fed tightening expectations post the recent CPI print.

The dollar depreciated against the yen to approximately 159.3 yen, about 2.7 per cent below the 40-year peak near 164, which triggered historic joint intervention by the US and Japan in late July. Shusuke Yamada, head of Japan FX/rates research at Bank of America, noted that investors' assessment of the authorities' commitment to supporting the yen can be determined through dollar-yen price movements and the subsequent policy response.

The euro saw a slight boost to US$1.1537, while the pound steadied at US$1.349, unaffected by the UK's unexpected economic growth in June. Deutsche Bank UK economist Sanjay Raja mentioned that the UK economy expanded by 0.4 per cent quarter-on-quarter, bringing the annualized growth rate in the first half of the year to a robust 2 per cent.