Dollar bruised after U.S. inflation comes in below expectations


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HONG KONG — The euro and Japanese yen were

sitting pretty on Thursday morning after U.S. inflation data

overnight came in less hot than feared and sent the dollar

tumbling.

U.S. consumer prices were unchanged in July compared with

June, when prices rose a monthly 1.3%. The July result was lower

than expectations due to a sharp drop in the cost of petrol,

causing markets to reposition on hopes that inflation was

peaking.

If price rises have reached their zenith, investors expect

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the U.S. Federal Reserve will not have to maintain its

eye-wateringly steep pace of interest rate hikes, which had been

supporting the dollar.

The euro was at $1.0297 on Thursday morning, after

jumping 0.84% the day before, its biggest daily percentage gain

since mid-June.

The yen was at 132.83 per dollar, after the greenback had

fallen 1.6% overnight on the Japanese currency, which is

particularly sensitive to moves in U.S. yields.

U.S. shares and short dated treasuries also rallied on the

news, which pushed the Nasdaq more than 20% above its

June low and the two-year treasury yield down to

3.2141%, seven basis points lower than its previous close.

U.S. Treasuries were not trading in early Asia as due to a

holiday in Japan.

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Analysts at Standard Chartered said the decline in the

dollar seemed to be driven by improvements in investors’

attitude to riskier assets – other than the move against the

yen, which they said was more of a yield play.

“The surprise downward (inflation) move takes out much of

the fear that the market had of a 75bps Fed hike or even

inter-meeting moves,” they wrote in a note.

“We suspect that many investors did not want to put on

positions ahead of an important number that could have gone

either way, so some of the post-CPI moves probably reflect

delayed buying of risk-correlated positions.”

Markets are currently pricing in a 57.5% chance of a 50

basis point interest rate rise at the Fed’s next meeting,

according to the CME’s Fedwatch tool, though another 75 basis

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point increase remains possible.

Fed policy makers were also warning in public remarks after

the data that they would continue to tighten monetary policy

until price pressures were fully broken.

The Australian dollar, another commonly used proxy

for risk sentiment, was at $0.7077 after a 1.7% overnight gain,

and sterling was on the front foot at $1.2207.

Bitcoin, which has also traded in line with risk

assets, was testing its recent highs at $24,000.

========================================================

Currency bid prices at 0109 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar $1.0295 $1.0299 -0.04% -9.44% +1.0303 +1.0294

Dollar/Yen 132.8700 132.8900 -0.11% +15.42% +132.9450 +132.7500

Euro/Yen

Dollar/Swiss 0.9428 0.9430 -0.02% +3.36% +0.9429 +0.9424

Sterling/Dollar 1.2205 1.2217 -0.08% -9.74% +1.2220 +1.2206

Dollar/Canadian 1.2781 1.2778 +0.03% +1.09% +1.2782 +1.2774

Aussie/Dollar 0.7076 0.7082 -0.09% -2.67% +0.7088 +0.7075

NZ 0.6401 0.6404 -0.05% -6.48% +0.6412 +0.6401

Dollar/Dollar

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

(Reporting by Alun John)

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