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The U.S. dollar was modestly higher on Wednesday as trade tensions and U.S. interest rate policy remained in focus, after briefly weakening earlier on data showing that U.S. consumer prices barely rose in May.
The greenback has come under pressure as tepid inflation and weakening economic data adds to bets that the Federal Reserve is closer to cutting interest rates.
Still, a sustained decline against the euro has not yet emerged as the U.S. currency still benefits from relatively higher rates than in Europe.
“You still have a very large divergence between the Federal Reserve and the European Central Bank, and that’s really what’s precluding a sustained euro/dollar rally based on the expectations of what the Fed’s going to do going forward,” said Bipan Rai, North American head of FX strategy at CIBC Capital Markets in Toronto.
The dollar dropped sharply on Wednesday after the Labor Department said its consumer price index edged up 0.1% last month. Excluding the volatile food and energy components, the core CPI nudged up 0.1% for the fourth straight month.
The decline was not sustained however, with the dollar index against a basket of six major currencies last up 0.11%. .DXY
Fed officials, including Chairman Jerome Powell, have sought to explain low price pressures as being transitory.
The Fed is not widely expected to cut rates when it meets on June 18-19, though investors will be watching for any new signals that a cut is getting nearer.
Interest rate futures traders are now pricing in a 22% chance of a cut in June, and an 85% likelihood of a cut in July.
Low inflation is a concern for the Fed at the same time as the U.S.-China trade war threatens to derail global economic growth.
Investors are also nervous that trade battles will spread to Japan and Europe, with U.S. President Donald Trump on Tuesday accusing Europe of devaluing the euro zone's single currency.
"The Euro and other currencies are devalued against the dollar, putting the U.S. at a big disadvantage," Trump tweeted.
He also renewed his attack on the U.S. central bank, saying that interest rates were too high.
======================================================== Currency bid prices at 9:32AM (1332 GMT)Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid Previous Change Session Euro/Dollar EUR= $1.1312 $1.1329 -0.15% -1.38% +1.1343 +1.1311 Dollar/Yen JPY= 108.5000 108.5000 +0.00% -1.60% +108.5700 +108.2200 Euro/Yen EURJPY= 122.74 122.89 -0.12% -2.76% +122.9900 +122.6100 Dollar/Swiss CHF= 0.9949 0.9922 +0.27% +1.38% +0.9953 +0.9904 Sterling/Dollar GBP= 1.2736 1.2722 +0.11% -0.16% +1.2758 +1.2716 Dollar/Canadian CAD= 1.3291 1.3279 +0.09% -2.54% +1.3304 +1.3278 Australian/Doll AUD= 0.6944 0.6960 -0.23% -1.49% +0.6963 +0.6943 arEuro/Swiss EURCHF= 1.1256 1.1240 +0.14% +0.03% +1.1264 +1.1226 Euro/Sterling EURGBP= 0.8881 0.8901 -0.22% -1.14% +0.8912 +0.8873 NZ NZD= 0.6577 0.6582 -0.08% -2.08% +0.6589 +0.6567 Dollar/DollarDollar/Norway NOK= 8.6394 8.6279 +0.13% +0.01% +8.6458 +8.6183 Euro/Norway EURNOK= 9.7729 9.7773 -0.05% -1.34% +9.7948 +9.7723 Dollar/Sweden SEK= 9.4403 9.4496 -0.25% +5.32% +9.4569 +9.4196 Euro/Sweden EURSEK= 10.6785 10.7050 -0.25% +4.04% +10.7173 +10.6760
