Dollar Falls as US Inflation Data Weighs on Rate Hike Expectations
The US dollar declined against most major currencies on Friday as oil prices rose and tensions in the Middle East persisted. The dollar received some support from capital flows into US technology stocks, but this was not enough to offset the impact of softer employment and inflation data.
Data released on Thursday showed that US producer prices were unchanged in July, further reducing expectations for a September interest rate hike. Markets currently price the chances of a rate hike at around 35%, which is lower than previously anticipated. This has pushed short-term US Treasury yields lower.
The euro rose 0.2% on Friday to $1.1552, although it was little changed for the week. Sterling also gained 0.2% to $1.3516 and was on track for a modest weekly advance, partly supported by stronger-than-expected UK GDP data released on Thursday.
The Japanese yen, which had been trading near a 40-year low of around ¥164 per dollar before the July intervention, fell around 0.9% this week to ¥159.29 per dollar. Analysts said price action suggests the US dollar may be receiving support from capital flows into the US equity market, particularly AI-related stocks.