Item 1 of 3 A U.S. Dollar note is seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration/File Photo
NEW YORK, Aug 15 (Reuters) – The dollar held gains against the euro on Thursday, pulling the European common currency back from a seven-month peak, after U.S. economic data eased fears of a recession risk and dampened expectations for aggressive interest-rate cuts.
The euro fell 0.36% versus the dollar at $1.0973. It reached $1.10475, its highest level this year, on Wednesday, as markets digested U.S. inflation numbers.
The dollar index rose 0.42% to 103.03, and moved away from the eight-month low of 102.15 touched last week.
“The data this morning goes counter to the recent market narrative of a Fed that is drastically behind the curve and would have to deliver jumbo rate cuts to avert a recession,” said Peter Vassallo, FX portfolio manager at BNP Paribas Asset Management. “Market pricing has adjusted accordingly, and short-term U.S. rates have risen significantly on the day.”
The pound also strengthened on the euro, which dipped 0.53% to 85.38 pence.
Thursday’s U.S. data follow Wednesday’s release of the consumer price index, which rose moderately in July, in line with expectations, and the annual increase in inflation slowed to below 3% for the first time since early 2021.
“This morning’s data absolutely crushed remaining bets on a half percentage-point move at the Federal Reserve’s September meeting,” said Karl Schamotta, chief market strategist at Corpay.
“Fear of a ‘hard landing’ in the U.S. economy has been almost fully unwound,” he said, “and Fed officials are seen responding with a more cautious start to the easing cycle.”
Markets are now pricing in a 74.5% chance of a 25 bps cut next month and a 25.5% chance of a 50 bps reduction, the CME FedWatch tool showed. Traders were evenly split at the start of the week between the two cut options following last week’s sell-off.
The yen was at 149.13 per dollar, inching away from the seven-month high of 141.675 per dollar touched during last week’s market mayhem and well beyond the 38-year lows of 161.96 it was rooted to at the start of July.
“Currency markets are suffering whiplash, with the dollar climbing against its rivals on a re-widening in rate differentials,” Schamotta said. “Rumors of the death of the ‘U.S. exceptionalism’ trade look to have been exaggerated, yet again.”
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Reporting by Laura Matthews in New York and Alun John in London; additional reporting by Ankur Banerjee in Singapore; editing by David Evans, Jonathan Oatis and Leslie Adler
Our Standards: The Thomson Reuters Trust Principles.
