Dollar extends losses on Fed's dovish hold and soft US data

The greenback extended Wednesday's losses following the Federal Reserve's dovish hold and fell to a one-month low against its peers, weighed down by the release of soft U.S. growth data.

Reuters reported U.S. economic growth solidly in the second quarter as massive government aid and vaccinations against COVID-19 fueled spending on travel-related services. Gross domestic product increased at a 6.5% annualized rate last quarter, the Commerce Department said on Thursday in its advance estimate of second-quarter GDP. The economy grew at an unrevised 6.4% rate in the first quarter.
Economists polled by Reuters had forecast GDP rising at an 8.5% rate last quarter. With the second-quarter estimate, the government published revisions to GDP data, which showed the economy contracting 3.4% in 2020, instead of 3.5% as previously estimated. That was still the biggest drop in GDP since 1946.

Versus the Japanese yen, dollar remained under pressure after overnight weakness in post-FOMC trading and dropped to 109.69 in Asian morning. Despite rebounding to 109.90 in New York morning, price fell to a 1-week trough at 109.43 near the close due to soft U.S. growth data together with yen buying.

The single currency traded with a firm bias in Asia and extend its recent ascent to 1.1879 in European morning. The pair then ratcheted higher to a 3-week peak at 1.1892 in New York morning on usd's broad-based weakness following Fed's dovish hold together with a rise in global stocks before retreating on profit-taking.

The British pound also traded with a firm bias in Asia on usd's overnight weakness and gained to 1.3969 in European morning. Price then rose to a 1-month peak at 1.3982 in New York morning on soft U.S. data before stabilising.

In other news, Reuters said the fiscal and monetary policies need to keep supporting Europe's economy, the European Central Bank's ECB board member Fabio Panetta told Italian daily Corriere della Sera in an interview. Panetta added the ECB would raise interest rates only if it was convinced that inflation can stabilise at 2% in the medium term.

Reuters news on the data front, Germany's annual consumer price inflation accelerated by more than expected in July, rising further above the European Central Bank's target of close to but below 2%, the Federal Statistics Office said on Thursday. Consumer prices, harmonised to make them comparable with inflation data from other European Union countries, rose by 3.1% in July, compared with 2.1% in June. The July figure compared with a Reuters consensus forecast for a reading of 2.9%.

Data to be released on Friday:
Japan unemployment rate, industrial output, retail sales, construction orders, housing starts, consumer confidence, Australia PPI, France PPI.
Germany GDP, import prices, Swiss retail sales, KOF indicators, France CPI, Italy unemployment rate, GDP, CPI, EU HICP, GDP, unemployment rate.
U.S. personal income, personal spending, PCE price index, employment wages, employment costs, Chicago PMI, University of Michigan sentiment, Canada GDP, producer prices and budget balance.