Dollar Erases Daily Drop on Pre-Weekend Position Trimming

Updated on
  • Retreat by euro, Mexican peso help greenback recover
  • Core CPI rises less than forecast for 6th time in 7 months

The dollar was little changed Friday, paring losses spurred by weaker-than-forecast inflation data as positions were trimmed before the weekend.

The Bloomberg Dollar Spot Index remained on track for its first weekly loss in five, despite recovering late in the session amid gains against the euro and Mexican peso. The greenback had earlier fallen as much as 0.3 percent after U.S. September consumer prices rose less than estimated, leading to reduced odds of a Federal Reserve rate hike in December.

  • The dollar was still down for the day against a majority of its G-10 peers, with the Kiwi and Aussie outperforming. For the week, the greenback slipped more than 0.5 percent, with the biggest losses on Tuesday, when the euro recovered as Catalonia’s leader sought more dialogue, and Wednesday, when Fed meeting minutes underscored concern about the lack of inflation pressures
  • Friday’s inflation data bolstered the view that readings below the Fed’s target may be structural rather than transitory. September CPI rose 0.5% for the month vs 0.6% est., leaving the y/y rate at 2.2% vs 2.3% est. Ex-food and energy readings were also a tenth of a percent below analyst estimates
  • Dallas Fed President Kaplan said Friday that the Fed should be patient and gradual in removing accommodation; Chicago Fed President Evans said a “massive” tax cut or other fiscal stimulus “at a time when the economy is doing very well” would require policy makers to “think about the inflationary impact”
  • EUR/USD extended a retreat later in the session to trade below 1.1830, leaving the pair nursing a 0.1% daily loss. The euro fell back from a new daily high at 1.1875 seen following the U.S. economic data. EUR may find support at early session low 1.1806 or Wednesday’s 1.1795 low. The shared currency remains lower vs a majority of G-10 peers ahead of the Oct. 16 deadline for the Catalan president to clarify his stance on the region’s bid for independence
    • The shared currency showed little reaction to an earlier report that the ECB may consider cutting its asset purchases by as much as half starting in January, while extending the buying program for nine months as one option for scaling back its QE program
  • GBP/USD was trading 0.2 percent higher around 1.3291 after extending its rebound from Thursday’s 1.3122 low to as high as 1.3338. Traders continue to try to balance USD expectations against shifting Brexit prospects. GBP was earlier knocked briefly lower by a report that Germany considered it too early to discuss a transition period
    • BOE’s Carney, in a CNBC interview, gave little fresh insight into the timing for a rate hike beyond that it may be appropriate to raise rates in coming months
  • USD/JPY was trading around 111.90 after seeing a new low at 111.69 as Treasuries rallied sharply after the morning data and as traders scaled back expectations for a December rate hike to below 70% from 75%
  • With U.S. economic data out of the way, market focus might turn back to Europe and uncertainties surrounding Catalonia and the Austrian election; Fed’s Yellen, BOJ’s Kuroda and BOC’s Zhou are among panelists at a Sunday event in Washington, where the annual World Bank/IMF meetings continue
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