Dollar at 15-month low as easing inflation firms rate peak bets

SINGAPORE  – The dollar hovered at 15-month lows on Friday after a steep dive overnight, as markets wagered the Federal Reserve was close to the end of its rate hike cycle due to easing inflation.

The dollar index, which measures the U.S. currency against six major rivals, stood at 99.71 in early Asian hours, its lowest since April 2022. The index is on course for its worst week since November.

U.S. producer prices barely rose in June and the annual increase in producer inflation was the smallest in nearly three years, data showed on Thursday, a day after consumer prices rose modestly last month as evidence mounts that the world’s largest economy had entered a phase of easing inflation.

“Markets are generally pretty pleasant with the lower inflation data, because lower inflation together with the still resilient labor market supports the narrative of a soft landing in the U.S. economy,” said Carol Kong, currency strategist at Commonwealth Bank Of Australia in Sydney.

“But we still maintain our view that the U.S. will enter recession later this year because of the impact of past and potentially future interest rate hikes.”

Markets are pricing in a 92-percent chance of a 25 basis point hike from the Fed later this month, CME FedWatch tool showed, but no more for the rest of the year.

Data on Thursday also showed that the number of Americans filing new claims for unemployment benefits unexpectedly fell last week, indicating that the labor market remains tight even as job growth is slowing.

Ryan Brandham, head of global capital markets, North America, at Validus Risk Management, said the data on weekly jobless claims and producer prices are supportive of the soft landing.

“If the Fed wishes to hike rates again later this month … it will be reassured by the jobs data. Although the recent trend of lower inflation may be encouraging, it probably won’t be sufficient to change the committee’s decision.”

Still, Fed officials remain cautious, with Federal Reserve Governor Christopher Waller saying he’s not ready to call an all clear on U.S. inflation and favors more rate rises this year.

Meanwhile, the Australian dollar eased 0.16 percent to $0.688 after Michele Bullock was appointed head of Australia’s central bank on Friday, becoming its first female governor as it undertakes a sweeping reorganization.

The euro touched a fresh 16-month peak of $1.1229 in Asian hours before easing to $1.1222, while sterling last fetched $1.3119, down 0.11 percent on the day. The pound broke above $1.30 on Thursday for the first time since April 2022.

The Japanese yen strengthened 0.23 percent to 137.71 per dollar and is on course for its best week against the dollar since January.

In cryptocurrencies, bitcoin last rose 0.03 percent to $31,367.56, having touched near two-month peaks of $31,818 overnight. Ethereum last rose 1.4 percent to $2,014.10.

A U.S. judge ruled that Ripple Labs did not violate federal securities law by selling its XRP token on public exchanges.

The XRP token eased 7 percent in early Asian hours to trade at $0.7546 after surging 76 percent on Thursday.