Dollar Drops for Second Day as Sluggish Inflation Fuels Concern

Updated on
  • Fed's preferred price gauge falls short of estimates
  • Greenback weakens after reaching 2-month high this week

The dollar declined for a second day after U.S. inflation and consumer spending figures trailed estimates, damping the outlook for the economy.

The greenback weakened against most of its major peers after a Commerce Department report showed a price index tied to consumer purchases decreased in September, the first drop since January. The inflation gauge is preferred by Federal Reserve policy makers and hasn’t exceeded their 2 percent goal since April 2012. American consumer sentiment rose this month less than forecast.

"It’s a bit of a wash for the dollar," said Shaun Osborne, chief foreign-exchange strategist at Bank of Nova Scotia in Toronto. The data "weighed on the dollar to a modest degree,” he said. 

Osborne said he expects the currency to recover as the Fed approaches its first interest-rate increase in almost a decade while the European Central Bank signals more quantitative easing.

Market Prices

The dollar fell 0.3 percent to $1.1006 per euro as of 5 p.m. in New York, after rising to a two-month high this week. The U.S. currency dropped 0.4 percent to 120.62 yen, while the Bloomberg Dollar Spot Index slipped 0.4 percent to 1,209.83.

The greenback is also under pressure as investors rebalance their portfolios at the end of the month, said Eimear Daly, a currency strategist at Standard Chartered Plc in London.

The dollar has risen this month against its two biggest counterparts, the euro and yen, as the Fed referred Oct. 28 to its "next meeting” in December when discussing the timing of policy tightening. In contrast, the greenback slipped against the currencies of commodity-exporting nations including the New Zealand dollar, Brazilian real and Mexican peso.

"For the near term we are broadly neutral on the greenback and see the potential for continued consolidation," Nick Bennenbroek, head of currency strategy at Wells Fargo & Co., in New York, said in a note. "Over the longer term, however, the growing monetary policy divergence between the U.S and global central bank should support U.S. dollar strength against most foreign currencies."