Dollar falls as downbeat U.S. data cast doubt on more Fed rate rise: June 26, 2017

Market Review - 25/06/2017  00:49GMT  

Dollar falls as downbeat U.S. data cast doubt on more Fed rate rise

The greenback weakened across the board Friday as downbeat U.S. economic data in New York morning triggered further broad-based dollar selling. Early soft inflation readings and subsequent mixed U.S. data cast market doubt whether the FED will make another rate hike later in the year. However, the dollar pared intra-day losses after release of stronger-than-expected U.S. new home sales. Aussie and the kiwi also gained versus the greenback due to rebound in oil prices after falling to 7-month lows earlier in the week. 

Markit's flash June reports on U.S. manufacturing and services activities came in at 52.1 and 53.0 respectively versus street forecast of 53.0 and 53.9 respectively, however, new home sales for May rebounded more than market expectation. 

Versus the Japanese yen, dollar moved narrowly in Asia following previous day's rebound, however, renewed selling at 111.42 capped initial gain and price later ratcheted lower to session lows of 111.17 ahead of New York open and traded sideways in lacklustre U.S. session. 

The single currency started to climb high at Asian open and rose from 1.1146 to 1.1188 in European trading on short covering. Despite intra-day pullback to 1.1162, renewed buying lifted the pair and price later rose to session highs of 1.1209 after downbeat U.S. manufacturing and services PMIs but soon retreated on robust U.S. new home sales, euro last traded at 1.1195 near New York close. 

Sterling continued to pare recent losses on Friday and climbed in Asia following hawkish comments by out-going MPC member Kristin Forbes. Price rose from 1.2676 (Australia) to session highs of 1.2745 in European morning and retreated to 1.2705 in New York morning, price later traded broadly sideways for rest of U.S. session and closed near 1.2719. 

Reuters reported policy hawk, Kristin Forbes, in her last speech before leaving the bank, urged colleagues on Thursday evening to raise rates immediately to quell the inflation pressure stemming from a weaker pound. 

Short-term UK market interest rates have shifted since a speech by the Bank's chief economist, Andy Haldane, earlier this week, with short sterling pricing in a strong chance of a rise in rates by December. 

Governor Mark Carney, however, said earlier in the week it was too early to move, and any rise in rates would put aside signs that the UK economy - and household demand - are currently ill-equipped to swallow higher borrowing costs. 

The pound continues to suffer because of political uncertainties generated by Brexit talks and a snap election this month which left Prime Minister Theresa May short of a majority in parliament. 

In other news on Friday, St. Louis Fed chief President James Bullard said the central bank should wait on further rate hikes, while Cleveland Fed chief Loretta Mester said recent inflation weakness should not defer another rate rise this year.  

Reuters also reported speculators boosted net long positions on the U.S. dollar, after slashing them the previous week to their lowest level since last August, according to calculations by Reuters and Commodity Futures Trading Commission data released on Friday. 

The value of the dollar's net long position rose to $7.82 billion in the week ended June 20, from $6.48 billion the previous week. 

Euro net longs, meanwhile, fell to a one-month low after hitting a more than six-year high the previous week, CFTC data showed.