Dollar Heads for Weekly Loss as Headline Inflation Seen Slowing

  • ‘Myriad factors weighing on the dollar,’ NAB’s Attrill says
  • Australia’s currency set for biggest weekly gain since March

Yellen Expects to Begin Winding Fed Down Balance Sheet

The dollar headed for a weekly decline before data forecast to show that the U.S. annual inflation rate slowed for a fourth month in June.

The Bloomberg Dollar Spot Index stayed close to the lowest since September as doubts grow over whether President Donald Trump can enact his growth agenda given distractions involving links between his administration and the Russian government. Signs the U.S. economy is losing momentum are adding to speculation the Fed will have to raise interest rates more slowly than it has previously forecast.

“There were myriad factors weighing on the dollar this week,” said Ray Attrill, global co-head of foreign-exchange strategy at National Australia Bank Ltd. in Sydney. “Perceptions Yellen is less confident about inflation than at the time of the June FOMC is reinforcing current skepticism that the Fed will deliver anything close to its median ‘dots’.”

Economists forecast the annual rate of U.S. inflation slowed to 1.7 percent last month from 1.9 percent in May, according to a Bloomberg survey. The Fed is watching inflation “very closely” and it’s “premature” to conclude the underlying trend of prices is falling short of the central bank’s target of 2%, Chair Janet Yellen said in Senate testimony Thursday.

  • BBDXY has dropped 0.6% this week to 1,180.89 after falling to 1,178.67 Thursday, lowest since Sept. 22; gauge is little changed Friday
  • USD/JPY has declined 0.4% this week to 113.44
    • If U.S. CPI is weaker than expected, “it could not only push USD/JPY below 113, but form a new range below 113,” says Etsuko Yamashita, chief economist at Sumitomo Mitsui Banking in New York
      • “If it exceeds forecasts, it would bolster the dollar on expectations for rate hike and balance-sheet reduction as scheduled”
    • USD/JPY FX options expiring Friday include $1.1b strike at 114: DTCC
    • Yellen said 3% U.S. economic growth would be an admirable but a difficult feat to achieve over the next few years, casting doubt on Trump’s ability to reach that goal with deregulation, infrastructure spending and tax reform
  • AUD/USD gains 0.1% Friday to 0.7739, extending weekly gain to 1.8%, biggest since period ended March 17
    • Offshore demand for AUD seen via purchases against JPY and NZD, says Asia-based FX trader who asked not to be identified because the person isn’t authorized to speak publicly
    • AUD/JPY gains 0.2% to 87.786; AUD/NZD strengthens 0.1% to 1.0574

— With assistance by Chikako Mogi, and Michael G Wilson

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