USD/CAD Slump Continues to Keep Dollar Down
The dollar fell against its rivals on Thursday after data showed further evidence of a slowdown in inflation while ongoing strength in the Canadian dollar kept the greenback below breakeven.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, fell by 0.36% to 92.62.
The Labor Department said on Thursday its Consumer Price index rose 0.2% last month missing expectations for a 0.3% rise. While year-on-year the CPI rose 2.1% in April missing economists’ forecast.
Some analysts said the timid inflation report was not bearish enough to derail a Federal Reserve rate hike. But it would likely scale back expectations for the Federal Reserve to add another rate hike to its currently projected two rate hikes.
CIBC said the “the Fed is still likely to pull the trigger on another rate hike in June,” and added that weaker inflation data “tilt the odds in favor of two more rate hikes this year rather than the three some Fed officials have been suggesting.”
GBP/USD fell sharply before recovering some losses to trade at $1.3504, down 0.32%, after the Bank of England, as expected, revealed an unchanged decision on interest rates but slashed its forecasts for growth.
The Bank of England will hike rates again in August and has pencilled in another hike for February next year, so the correction in bond UK bond yields and sterling seems overdone, as the medium term outlook for rates has not changed, Actions Economics said.
USD/CAD fell 0.60% to C$1.2771.
EUR/USD rose 0.51% to $1.1911 amid an increased possibility that a government of anti-establishment parties in Italy comes into power, which would end weeks of political gridlock.
USD/JPY fell 0.18% to Y109.52.