Dollar falls on diminishing US rate hike hopes

LONDON - The dollar weakened further on Thursday after fresh signs of a slowing US economy sank expectations that the US Federal Reserve will lift interest rates, dealers said.

By (AFP)

Published: Thu 17 Aug 2006, 6:35 PM

Last updated: Sat 4 Apr 2015, 2:17 PM

The euro traded at 1.2875 dollars in early European trading, compared with 1.2839 dollars late in New York on Wednesday.

The dollar stood at 115.28 yen, from 115.84 yen on Wednesday.

Dollar watchers will focus later Thursday on the Philadelphia Federal Reserve’s index of business activity for August.

“Market focus over the last few days has been centred on the release of US inflation data and whether it would it would provoke more US rate hikes,” said Calyon currency analyst Mitul Kotecha.

“The outcomes of both the PPI and CPI reports have effectively sealed the case for a pause and we believe that the Fed has peaked in the present cycle.”

The US consumer price index (CPI) rose by 0.4 percent in July from June, as expected, driven up by high energy prices, it was revealed on Wednesday.

But the core CPI rate, which excludes food and energy, increased by 0.2 percent, less than market expectations of 0.3 percent. Producer prices also showed a surprise drop this week.

Data showing weak growth in US industrial production also buttressed the US Federal Reseve’s case for pausing on a long cycle of rate hikes stretching back to mid-2004.

The Fed last week slammed the brakes on its two-year campaign of back-to-back interest rate hikes due to signs of a slowing US economy.

But the central bank said at the time it was open to further rate rises later and would carefully monitor inflation. American borrowing costs currently stand at 5.25 percent.

Meanwhile, sterling slipped on Thursday after news that British retail sales faltered in July.

Retail sales fell by 0.3 percent in July compared with the previous month, which marked the first monthly fall since January. However, sales were 4.0 percent higher than in July 2005, official data showed.

The euro was changing hands at 1.2875 dollars against 1.2839 on Wednesday, 148.38 yen (148.75), 0.6786 pounds (0.6774) and 1.5775 Swiss francs (1.5790).

The dollar stood at 115.28 yen (115.84) and 1.2251 Swiss francs (1.2297).

The pound was being traded at 1.8965 dollars (1.8953).

On the London Bullion Market, the price of an ounce of gold rose to 631.40 dollars per ounce, from 629.75 dollars late on Wednesday.

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