Dollar rebounds broadly as upbeat U.S. inflation data and rising yields trigger short covering


The greenback pared its earlier losses this week and ended the day high against its peers G4 on Thursday as the release of upbeat U.S. inflation data together with rising treasury yields dampened market speculation that the Federal Reserve will cut its rates aggressively this year.  
  
Reuters reported U.S. underlying consumer prices increased by the most in nearly 1-1/2 years in June amid solid gains in the costs of a range of goods and services, but will probably not change expectations the Federal Reserve will cut interest rates this month.    
The Labor Department said on Thursday its consumer price index excluding the volatile food and energy components rose 0.3% last month. That as the largest increase since January 2018 and followed four straight monthly gains of 0.1%. The so-called core CPI was boosted by strong increases in the prices for apparel, used cars and trucks, as well as household furnishings.    
The overall CPI edged up 0.1% last month, held back by cheaper gasoline and food prices. The CPI rose 0.1% in May. It increased 1.6% year-on-year in June after rising 1.8% in May.    Economists polled by Reuters had forecast the CPI unchanged in June and rising 1.6% year-on-year.  The Fed, which has a 2% inflation target, tracks the core personal consumption expenditures (PCE) price index for monetary policy. The core PCE price index increased 1.5 percent year-on-year in May and has undershot its target this year.  
  
Versus the Japanese yen, although dollar resumed its overnight weakness post Federal Reserve Chair Powell's dovish remarks to the Congress and dropped to an intra-day low at 107.86 in Asian morning, price erased its losses and gained to 108.19 in European morning. The greenback then rose to 108.34 in New York morning on the release of upbeat U.S. inflation data, later price climbed to session highs of 108.52.  
  
The single currency traded with a firm bias and edged up to 1.1280 in Asian morning on usd's continued weakness, then briefly gained to session highs at 1.1285 at New York open before dropping to 1.1246 in New York tradingon usd's strength after release of upbeat U.S. data.  
  
The British pound also gained to 1.2538 in Asia on usd's weakness and rose to an intra-day high at   
1.2571 ahead of New York open due partly to comments from Bank of England Governor Mark Carney. However, cable pared its gains and retreated to 1.2510 in tandem with euro in New York on usd's strength.  
Reuters reported Britain should do what it can to remain attractive to the international investors who fund its large current account deficit, potentially one of the economy's major vulnerabilities, Bank of England Governor Mark Carney said on Thursday.  
  
Earlier, the BoE said the UK is becoming more vulnerable to the risk that foreign investors could withdraw their money from Britain, which runs the biggest balance-of-payments gap in any Group of Seven country.  
"What's crucial is that first and foremost we maintain the elements that make the UK such an attractive place for investment," Carney told reporters after presenting the BoE's twice-yearly Financial Stability Report.  
  
In other news, Reuters reported the risks to the U.S. economy are tilted a bit more to the downside, but there is still significant economic data that policymakers will see before deciding whether to cut rates, a Fed official said on Thursday.  
Richmond Federal Reserve President Thomas Barkin said in an interview with Bloomberg News that rate cuts could be used to stimulate the economy in many ways, but did not say whether he would endorse such a move at this time.  He said his business contacts are not cutting their spending but they are not dramatically expanding their investments either.  
  
Data to be released on Friday :  
  
NZ mfg PMI, China exports, imports, trade balance, Japan industrial output, Germany wholesale price index, EU industrial output, U.S. PPI, core PPI and export prices.  
  

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