Dollar Weakens With Cooling Inflation

(RTTNews) - The U.S. dollar extended losses against major currencies during the week ended March 14 amidst a larger-than-expected softening in consumer price inflation as well as producer price inflation.

The greenback declined against the euro, the British pound and the Australian dollar, but rebounded against the Japanese yen. The Dollar Index which measures the U.S. Dollar's strength against a basket of 6 currencies declined further from the four-month lows recorded in the previous week. Renewed rate cut expectations from the Federal Reserve and concerns about tariff turbulence suppressing economic growth in the U.S. aided the dollar's decline.

The Dollar Index, a measure of the Dollar's strength against a basket of currencies comprising the euro, the British pound, the Japanese yen, the Canadian Dollar, the Swedish Krona and the Swiss franc closed trading 0.12 percent lower at 103.72 on March 14 versus 103.84 a week earlier. The week's trading range was much wider, oscillating between the low of 103.22 recorded on Tuesday and the high of 104.09 recorded on Friday.

According to data released on Tuesday, job openings in the United States increased to 7.74 million in January, rising from a revised 7.51 million in December and exceeding market expectation of 7.63 million.

Data released on Wednesday morning showed headline annual inflation edging down to 2.8 percent in February from 3 percent in January and surpassing market expectations of a decline to 2.9 percent. The core component thereof which was seen declining to 3.2 percent from 3.3 percent in January actually recorded a level of 3.1 percent.

Inflation on a month-on-month basis dropped to 0.2 percent. It was seen declining to 0.3 percent from 0.5 percent in January. The core inflation component which was expected to edge down to 0.3 percent in February from 0.4 percent in January declined more than expected to 0.2 percent.

The easing in producer price inflation also supported the dollar's decline. Data released on Thursday showed producer prices in the U.S. unchanged in February from the levels in January. This compared with the upwardly revised 0.6 percent rise in the previous period and below forecasts of a 0.3 percent gain. It was also the lowest rate in seven months.

With the Fed's interest rate decision and forward guidance looming large, spotlight has turned on how the Fed would take cognizance of the effects of the tariff changes on growth and inflation in the U.S. economy as well as respond to the cooling inflation.

The euro rallied 0.43 percent against the U.S. dollar during the week ended March 14 amidst optimism over Russia-Ukraine peace prospects. Assessment that the new U.S. tariffs and Germany's defense spending could contribute to inflationary pressures in the region and reduce the headroom available to the European Central Bank to ease rates also lifted the euro. From the level of 1.0832 on March 7, the EUR/USD pair rallied to 1.0879 by March 14. The weekly trading ranged between the low of 1.0805 recorded on Monday and the high of 1.0947 touched on Tuesday.

The sterling also gained 0.09 percent against the greenback during the week ended March 14 amidst an unexpected economic contraction. Data released on Friday showed that the British economy contracted 0.1 percent month-over-month in January, versus a 0.4 percent growth in December. Markets had expected a growth of 0.1 percent. The GBP/USD pair rose to 1.2932 on March 14 from 1.2920 a week earlier. The sterling's weekly trading range was between $1.2860 recorded on Monday and $1.2988 recorded on Wednesday.

The Australian Dollar also added 0.29 percent against the greenback during the week ended March 14 amidst a surge in the consumer confidence indicator and a plunge in the business confidence indicator. From the level of 0.6305 recorded on March 7, the AUD/USD pair rallied to 0.6323 in a week's time. The pair which had dropped to a low of 0.6259 on Tuesday climbed to touch the week's high of 0.6335 on Thursday.

The USD/JPY pair increased 0.40 percent during the week ended March 14 as it closed at 148.62 versus 148.03 a week earlier. The pair ranged between the low of 146.54 recorded on Tuesday and the high of 149.20 recorded on Wednesday. The yen's weakness came amidst growing bets of a pause by Bank of Japan in the forthcoming interest rate review.

On the horizon are interest rate decisions by the Bank of Japan, Federal Reserve and Bank of England. Retail Sales data from the U.S. is due on Monday morning. The Fed's interest rate decisions as well as the release of economic projections are due on Wednesday. Amidst anxiety ahead of these and the persisting uncertainty in the global trade tariff environment, the DXY has decreased further to 103.53.

Inflation update from Japan is due on Thursday. But in the interest rate decision due by Bank of Japan on Tuesday, markets expect a status quo. In this backdrop, the USD/JPY pair has moved up to 148.78.

Even though unemployment in the U.K. is seen rising in January, markets expect Bank of England to stay pat on rates in the decision to be announced on Thursday. The GBP/USD pair has increased to 1.2976 whereas the EUR/USD pair has rallied to 1.0903. The AUD/USD pair has also moved up to 0.6354.