Dollar Rally Fizzled Last Week As Flat CPI Lifted Rate Cut Hopes

(RTTNews) - A resurgence in the U.S. dollar, aided and abetted by the recent hawkish narrative from Fed speakers fizzled as October's inflation readings showed inflation in the U.S. flat on a month-on-month basis. The immediate spurt in rate cut expectations it triggered resulted in the greenback plunging against the euro, the British pound, the Australian Dollar as well as the Japanese yen during the week ended November 17.

The Dollar Index, a measure of the Dollar's strength against a basket of 6 currencies plunged 1.83 percent over the past week amidst the softer-than-expected consumer price inflation readings.

Data released by the U.S. Bureau of Labor Statistics on Tuesday showed headline annual CPI falling to 3.2 percent, from 3.7 percent in the previous month. Markets had expected it to fall to 3.3 percent. The core component, which was seen steady at 4.1 percent, declined to 4 percent. Headline month-on-month CPI, which was seen dropping to 0.1 percent, from 0.4 percent earlier, recorded a flat reading. The core inflation which was seen steady at 0.3 percent actually declined to 0.2 percent.

Dollar's fortunes reversed as relief and expectations of a policy pivot by the Fed replaced the inflation concerns highlighted by Fed Chair's recent lament about the Fed having not done enough to contain inflation. The producer price inflation data that followed on Wednesday exacerbated the dollar's weakness as it showed an unexpected month-on-month decline of 0.5 percent in October. Markets had expected the producer price inflation to decrease to 0.1 percent, from 0.4 percent in the previous month. The core PPI was flat whereas markets had expected it to rise to 0.3 percent, from 0.2 percent in the previous month. Retail sales in October declining 0.1 percent month-on-month, versus an increase of 0.9 percent in the previous month also expedited the dollar's decline.

Amidst data showing a moderation in inflation pressures, the index finished the week's trading at 103.92, versus 105.86 a week earlier. Though DXY rose mildly to 105.96 at the start of the week, it was a steep descent, thereafter, causing the index to drop to a weekly low of 103.81.

The dovish narrative for the dollar helped the euro's surge. The EUR/USD pair leaped to 1.0907, from 1.0681 a week earlier. Amidst the 2.2-percent weekly surge, the pair climbed steadily from the low of 1.0664 on Monday to a high of 1.0917 on Friday. Comments from an ECB official that stressed on the persisting inflationary pressures also helped the single currency firm up against the greenback.

The pound's surge against the dollar was a tad less intense and the GBP/USD pair gained 1.96 percent during the week ended November 17. The pair jumped from the week's low of 1.2212 touched on Monday to a high of 1.2507 on Tuesday. The pair however dithered over the course of the week, eventually falling to 1.2461 by the end of the week, versus 1.2222 at close on November 10 as inflation data revealed lower-than-expected readings.

The Australian dollar gained around 2.2 percent to the U.S. Dollar during the week ended November 17, rising to 0.6508, from 0.6364 a week earlier. The pair limbed from the low of 0.6346 on Monday to touch the week's high of 0.6543 on Wednesday. Australian jobs data released during the week had shown mixed signals for the job market, supporting the strength of the Australian Dollar.

The USD/JPY pair touched the week's high of 151.95 on Monday. The pair traded above the 150 level for most part of the week, except on Friday when it dropped to the weekly low of 149.20. During the week, the pair shed 1.24 percent as it dropped to 149.62, from the level of 151.50 a week earlier. The decline in Japanese producer price inflation that increased the chances of Bank of Japan continuing its ultra-dovish stance added to the yen's weakness.

Markets wait in anticipation for the Fed's monetary policy trajectory to be revealed in the FOMC minutes due for release on Tuesday. Amidst the anxiety, the Dollar Index has decreased to 103.60. The EUR/USD pair has increased to 1.0929 whereas the GBP/USD pair has increased to 1.2475. The AUD/USD pair has moved up to 0.6551 whereas the USD/JPY pair has fallen to 148.50.