Slowing Fed Hike Bets Dent The Dollar's Rebound

(RTTNews) - A slew of economic data releases from the U.S. last week dimmed rate hike expectations from the Federal Reserve, limiting the U.S. Dollar's rebound against major currencies.

Global markets tempered expectations of an immediate rate hike by the Federal Reserve amidst in-line consumer price inflation and softer-than-expected producer price inflation in the U.S. An unexpected decline in retail sales also weakened the dollar during the week ended August 14.

During week ended August 14, the U.S. dollar inter alia declined against the euro, the British pound, the Australian dollar and the Canadian dollar. It however rallied against the Japanese yen, the Swiss franc as well as the Swedish krona. As a result, the Dollar Index which measures the Dollar's strength against a basket of 6 currencies gained 0.13 percent on a weekly basis. Here is a quick recap of the dollar's trajectory during the week ended August 14.

Data released by the U.S. Bureau of Labor Statistics on Wednesday showed headline annual inflation edging down to 3.4 percent from 3.5 percent in June. The core component thereof also edged down to 2.5 percent from 2.6 percent in the previous month. On a month-on-month basis, headline inflation stood at 0.1 percent in July versus -0.4 percent in June. The core component thereof increased to 0.2 percent in July from a flat reading in June.

Data released by the U.S. Bureau of Labor Statistics on Wednesday showed flat producer price inflation in July, versus -0.1 percent in June and market expectation of 0.2 percent. The core component thereof stood at 0.2 percent versus 0.4 percent in the previous month and market forecast of 0.3 percent.

Data released on Friday showed retail sales in the U.S. falling 0.6 percent month-on-month in July, sharply missing expectations for a 0.1 percent rise and reversing the 0.2 percent gain recorded in June.

Rate hike expectations from the Federal Reserve decreased as markets digested the economic data. The likelihood of a Fed rate hike in September dropped to 33 percent by Friday, from a probability of more than 52 percent recorded on Monday. Likewise, the probability of a rate hike in October dropped to 46 percent by Friday, from 66 percent on Monday. Markets had on Monday assigned a probability of 81 percent for a Fed rate hike in December, which dropped to 68 percent by Friday.

Amidst the data releases as well as the changing expectations from the Federal Reserve, the Dollar Index traded between the high of 100.08 recorded on Thursday and the low of 99.47, recorded on Friday. The index eventually closed the week's trading at 99.67, implying a gain of 0.13 percent from the level of 99.54 on August 7.

Amidst the growing monetary policy divergence between the U.S. which witnessed fading rate hike bets and the Euro region which has seen rate hike expectations going up, the EUR/USD pair added 0.10 percent during the week. From the weekly low of 1.1511 touched on Thursday, the pair climbed to a high of 1.1586 on Friday. The pair eventually closed trading in the week ended August 14 at 1.1570, versus 1.1559 a week earlier.

The British pound rallied 0.32 percent against the greenback during the week ended August 14. The GBP/USD pair which had closed at 1.3492 on August 7 closed trading for the week ended August 14 at 1.3535.

The weekly trading range was wider, between a low of 1.3473 recorded on Thursday and a high of 1.3563 recorded on Friday. Data released on Thursday showed GDP in the U.K. expanding as expected, by 0.4 percent quarter-on-quarter in the second quarter, versus a 0.6 percent expansion in the previous quarter.

The Australian Dollar gained 0.23 percent against the U.S. Dollar during the past week amidst the greenback's retreat, attributed to the decline in rate hike expectations from the Federal Reserve. The AUD/USD pair closed the week ended August 14 at 0.7084 versus 0.7068 recorded a week earlier. During the week, the pair oscillated between a low of 0.7040 recorded on Tuesday and the high of 0.7097 recorded on Friday. As expected, the Reserve Bank of Australia had on Tuesday unanimously decided to keep its cash rate unchanged at 4.35 percent.

The U.S. dollar surged against the Japanese yen during the week ended August 14 despite the recent government intervention in the currency markets to shore up the yen. The USD/JPY pair closed the week at 159.32 versus 157.81 a week earlier, registering a surge of 0.96 percent. During the week, the pair oscillated between the low of 157.66 recorded on Monday and the high of 159.57 on Friday.

Ebbing rate hike expectations from the Federal Reserve have dragged down the six-currency Dollar Index further on Monday. The index is currently trading 0.23 percent lower at 99.44 after ranging between 99.29 and 99.52. Market spotlight is also on the minutes of the FOMC due for release on Wednesday.

Amidst the divergence in rate hike expectations from the Federal Reserve and the European Central Bank, the EUR/USD pair has rallied 0.22 percent on Monday to trade at 1.1596 versus 1.1570 at close on Friday.

The GBP/USD pair is currently trading near 1.3564 versus 1.3535 on Friday, implying a gain of 0.23 percent. Several economic data releases including unemployment, inflation, retail sales and PMI readings are due from the U.K. during the course of the week.

The AUD/USD pair is currently trading 0.47 percent higher at 0.7119 versus 0.7084 on Friday.

The USD/JPY pair is now trading 0.04 percent lower at 159.25 as compared with the level of 159.32 recorded at the end of the previous week. Trade as well as inflation updates are due from Japan during the week.