Dollar pares post-FOMC gain as soft U.S. data Friday casts doubts on timing of next Fed hike: Jun 19, 2017

Market Review - 18/06/2017  02:33GMT  

Dollar pares post-FOMC gain as soft U.S. data Friday casts doubts on timing of next Fed hike

Although the greenback rallied against the Japanese yen in Asia, Europe as well as New York morning on Friday to a 2-week high of 111.42, release of soft U.S. housing data and consumer confidence cast market doubt on whether the Fed will continues its rate hike at its September meeting, leading to fall in U.S. Treasury yields and triggered broad-based usd selling, knocking the greenback to day's lows versus its major peers near the close. 

Dlr fell broadly after downbeat U.S. housing data. Reuters reported U.S. homebuilding fell for a third straight month in May to the lowest level in eight months as construction activity declined broadly, which could raise concerns that the housing market recovery was faltering. 

Housing starts dropped 5.5 percent to a seasonally adjusted annual rate of 1.09 million units, the Commerce Department said on Friday.  

That was the lowest level since September 2016. April's sales pace was revised down to 1.16 million units from the previously reported 1.17 million units. Economists polled by Reuters had forecast groundbreaking activity rising to a rate of 1.22 million units last month. 

Homebuilding fell 2.4 percent on a year-on-year basis. 

In other news, Minneapolis Federal Reserve President Neel Kashkari said on Friday that he dissented on the U.S. central bank's decision earlier this week to raise interest rates because of worries about a recent drop in inflation. 

"We should have waited for more data to see if the recent drop in inflation is transitory," Kashkari said in an essay he published to explain his dissent. The Fed, he said, may be "erroneously" forecasting an increase in inflation based on tight labor markets, making a mistake that could lock the U.S. economy into lower inflation for longer. 

Versus the yen, the pair stood tall following previous day's strong gain and met renewed buying at 110.66 ahead of Asian open, price ratcheted higher on cross-selling in the yen due to return of risk appetite, dovish comments by Bank of Japan Governor gave dollar further lift and price later hit a 2-week high of 111.42. However, release of downbeat U.S. housing starts and building permits, then lower-than-expected University of Michigan consumer confidence triggered fall in U.S. Treasury yields and knocked the pair to session lows of 110.66. 

Earlier, the Bank of Japan kept monetary policy steady on Friday and upgraded its assessment of private consumption for the first time in six months, signalling its confidence in an export-driven economic recovery that is gaining momentum. 

But Governor Haruhiko Kuroda reassured markets the BOJ will still lag well behind the Federal Reserve in dialling back its massive stimulus programme, with inflation far from reaching his 2 percent target. 

He also shrugged off the need to scrap the BOJ's pledge to increase its bond holdings at 80 trillion yen ($729 billion) per year, even though recent purchases have slowed significantly.

Although the euro was on the back foot in subdued Asian trading after hitting a 2-week low of 1.1133 the previous day, renewed buying at 1.1139 ahead of European open lifted the pair, price rebounded to 1.1184 on short covering before retreating to 1.1158 at New York open. The single currency rose again after downbeat U.S. housing data and release of weak U.S. consumer confidence helped price climb to session high of 1.1201 at the close. 

A piece of news on Greece. Reuters reported the deal reached on Greece at a meeting of euro zone finance ministers on Thursday is a "good one" and stability is required for its implementation, French President Emmanuel Macron said on Friday. 

Macron made the comments at a joint news conference with Spanish Prime Minister Mariano Rajoy at the Elysee palace. 

Euro zone governments threw indebted Greece another credit lifeline worth 8.5 billion euros on Thursday and offered further clarity on a roadmap to possible debt relief. 

Sterling swung broadly sideways in directionless Friday trading. Price met buying interest at 1.2751 and later ratcheted higher to session highs of 1.2806 in New York morning, however, offers at 1.2810/20 capped intra-day gain. 

BoE released its Quarterly Buletin on Friday. Reuters reported British inflation is more sensitive to changes in the value of sterling and commodity prices than existing economic models suggest, Bank of England official Kristin Forbes said in a research paper released on Friday. 

"The exchange rate is significantly correlated with movements in the slow-moving, persistent trend (in UK inflation)," Forbes said in the abstract of the paper. 

"Other variables emphasised in standard inflation models - such as slack and inflation expectations - may also play some role, but ... the magnitude of their effects is substantially smaller than for commodity prices and the exchange rate," she added.