Dollar’s 3-Day Decline Stalls as Report Shows Inflation Firming

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The dollar’s three-day slump came to a pause after a government report showed U.S. consumer prices grinding higher, damping concern the Federal Reserve is struggling to revive inflation.

The U.S. currency strengthened from an almost two-week low as the increase in so-called core inflation reflected broad-based gains in the cost of living. The currency gauge was still set for the worst weekly drop since mid-March on concern the economy, one of the strongest among developed countries, has lost traction this year.

“Trading is going to be more data dependent -- until we have confirmation of a turn in U.S. data, it’ll be difficult to sustain a very strong dollar bid,” Richard Cochinos, head of Americas Group of 10 currency strategy at Citigroup Inc. in New York, said by phone. “We don’t feel the long-dollar view is incorrect, but the timing does seem to be mis-priced.”

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, was little changed at 1,185.36 at 5 p.m. New York time. It fell as much as 0.5 percent earlier Friday.

The index dropped 1.6 percent this week, trimming its advance this year to 4.8 percent. It gained 11 percent in 2014.

Price Trends

The stronger outlook on consumer prices was a departure from a series of reports this month that suggest growth in the world’s biggest economy has lost momentum. Figures on American housing, factories, retailers, and jobless claims were all worse than projected, undermining the prospects of an early increase in interest rates.

“There’s some degree of consistency starting to emerge on the inflation front,” said David Donabedian, chief investment officer in Atlanta at Atlantic Trust Private Wealth Management, which oversees $26.2 billion. “I’ve said for the last month that first tightening would come September at the earliest and I’ve seen no reason to change that.”

Economic fundamentals during the course of 12 to 18 months still argue for a strong dollar, he said.

Strategists expect the dollar’s gains in the coming months will be muted compared with the most recent quarters. The greenback will rise 3.5 percent to $1.04 against the euro by the end of the year, compared with a 14 percent surge in 2014. Gains versus the yen will be limited to 5 percent, after more than 10 percent gains in each of the past three years.

Positions Dwindle

Net bullish bets for the dollar to strengthen against eight major counterparts by hedge funds and money managers fell to the least since October, according to Commodity Futures Trading Commission data. Futures positions betting on a stronger greenback were at 329,939 contracts as of April 14.

Fed officials are divided about the timing of the first rate increase in almost 10 years, with Vice Chairman Stanley Fischer saying they can’t keep interest rates at record low forever, while Lockhart said he wanted to see both falling unemployment and rising inflation before taking the first step. Both officials vote on policies this year.

A Bloomberg survey conducted earlier this month showed the share of economists projecting the Fed will wait until September more than doubled to 71 percent, from 32 percent last month. Those predicting June shrank to 12 percent from 45 percent in March.

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