The dollar slipped to near a one-week low on Thursday after Federal Reserve Chair Jerome Powell’s bleak comments on the U.S. economy bolstered expectations of an interest rate cut later this month, which would be the first in a decade.
Since the middle of May, the dollar index has fallen 1.6%, with the greenback down 2.6% against the yen.
The dollar trimmed losses against the yen and euro after data showed U.S. underlying consumer prices rose 0.3% in June, the most in nearly 1-1/2 years, with solid gains in the costs of a range of goods and service.
In another positive economic report, initial weekly jobless claims fell to a seasonally adjusted 209,000 for the week ended July 6, the lowest since April. Economists polled by Reuters had forecast claims rising to 223,000 in the latest week.
The inflation data, however, had little bearing on a widely expected view of an interest rate decrease this month at the Fed’s next monetary policy meeting, analysts said.
“If there was any doubt that the data was really compelling, especially the strong U.S. non-farm payrolls report last week, I think we had our answer yesterday, with Powell’s pretty strong argument for easing as soon as July,” said Mazen Issa, senior FX strategist at TD Securities in New York.
In testimony to Congress on Wednesday, Powell pointed to “broad” global weakness that was clouding the U.S. economic outlook amid uncertainty about the fallout from the trade conflict with China and other nations.
His comments on Wednesday affirmed market expectations – money markets expect one rate cut later this month and a cumulative 68 basis points of cuts until the end of 2019 – but market watchers said Powell’s views will drive the dollar.
The Fed chief was giving a second day of testimony to members of Congress on Thursday.
In mid-morning trading, the dollar index slipped 0.1% to 97.039, after earlier falling to a one-week low.
The dollar was also down 0.2% versus the yen to 108.26 yen, and slipped 0.1% against the Swiss franc to 0.9886 franc.
“Once we get a quarter-point rate cut, which markets are widely expecting, Powell will keep all options open on the table, and that means the dollar’s outlook is uncertain,” said Manuel Oliveri, an FX strategist at Credit Agricole in London.
The euro, meanwhile, was little changed at $1.1253, even as expectations grew that the European Central Bank would loosen policy.
Focus has turned to the release of the ECB’s June minutes and whether it has started discussions about a return to asset purchases.
The British pound rose from six-month lows to $1.2535. But it remains down for the week, amid Britain’s economic gloom and a fast-approaching Brexit deadline.