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Dollar slides for 3rd day on US rate cut bets

New York

THE dollar weakened for a third straight session on Friday, still pressured by expectations that the Federal Reserve will start cutting interest rates at a monetary policy meeting later this month.

Against a basket of other currencies, the dollar fell 0.1 per cent to 97.004, posting its worst daily loss against the yen and Swiss franc in more than three weeks.

The dollar briefly trimmed losses after US data showed producer prices rose slightly in June, up 0.1 per cent following a similar gain in May. In the 12 months through June, the PPI rose 1.7 per cent, the smallest gain since January 2017.

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Joe Manimbo, senior market analyst, at Western Union Business Solutions in New York said the PPI increase should not shake US rate cut expectations.

Until the Fed's preferred gauge of inflation, the core personal consumption expenditures (PCE) price index, shows convincing signs of heating up from a low 1.6 per cent, the Fed is unlikely to change its stance on cutting rates this month, he added.

The producer prices data followed a report on Thursday showing the core US consumer price index, excluding food and energy, rose 0.3 per cent in June, the largest increase since January 2018.

The CPI reading pushed US Treasury yields higher, but money markets still indicated one rate cut at the end of July and a cumulative 64 basis points in cuts by the end of 2019, especially after Fed chairman Jerome Powell flagged such a move in his two-day testimony before Congress last week. That should be dollar-negative in general, analysts said.

But Jane Foley, head of FX strategy at Rabobank in London, believes dollar weakness will not be as severe as many anticipated because other major central banks are easing as well. "The dovish stances of most other G-10 central banks is offsetting the impact of potential Fed action on the US dollar crosses," she said, noting, for instance, that she expects the European Central Bank to cut its discount rate further into negative territory at its September meeting.

The euro, as a result, has been on a downtrend since the beginning of the year, down 1.7 per cent.

However, the single currency on Friday rose 0.2 per cent versus the dollar to US$1.1271, after earlier slipping following comments from ECB Governing Council member Ignazio Visco saying the bank will need to adopt further expansionary measures if the eurozone economy does not pick up. He said the ECB will consider its options "in the coming weeks". REUTERS