US Dollar pinned down by easing Fed rate hike expectations

Frankfurt (Aug 15)  The dollar was softer on Monday, pegged back by sluggish U.S. data that tempered expectations of a Federal Reserve interest rate hike this year.

The U.S. currency was 0.3 percent lower at 100.95 yen JPY= after losing 0.6 percent on Friday, when retail sales and producer prices came in weaker than expected. The euro was up 0.15 percent at $1.1172 EUR=, having risen 0.2 percent on Friday.

The dollar index was weaker at 95.62 .DXY after dropping to 95.254 on Friday, its lowest since Aug. 3.
 
U.S. Treasury yields slid on Friday, with the 10-year yield US10YT=RR falling 5 basis points to a two-week low of 1.48 percent. It traded at 1.51 percent on Monday.

"After the disappointing retail sales and what our economists see as downside risks to the July U.S. consumer price inflation print on Tuesday, we see very limited scope for dollar strength against the euro and the yen," said Petr Krpata, currency strategist at ING in London.

U.S. consumer inflation is forecast at zero month on month for July, down from 0.2 percent in June, and annual headline inflation is also expected to slow amid lower oil prices. ECONUS. Last week, productivity numbers indicated subdued inflationary pressures, all of which underpinned expectations that the Fed will be in no hurry to raise rates.
 
Federal funds futures implied traders saw a 43 percent chance the central bank would increase rates at its December policy meeting, down from 47 percent before Friday's data. Traders said the Fed minutes from the July meeting and due for release on Wednesday could give investors more clues on policy.

"The weak July retail sales report should help keep the Fed on the sidelines and should also be reflected in this Wednesday's release of the Fed minutes," Morgan Stanley analysts said in a note.

Source: Reuters