September 13, 2018 / 12:25 AM / 2 months ago

Dollar slips on CPI miss, hopes for U.S.-China trade reset

NEW YORK (Reuters) - The dollar fell to a near 1-1/2-month low against a group of currencies on Thursday after data showed U.S. consumer prices increased less than expected in August, changing traders’ views on an acceleration in domestic inflation.

A money changer counts U.S. dollar banknotes at a currency exchange office in Diyarbakir, Turkey May 23, 2018. REUTERS/Sertac Kayar

Signs of reduced trade tensions between China and the United States after Washington reached out to Beijing on Wednesday to restart trade talks also pressured the greenback.

“The safe-haven demand for the dollar has diminished the past two days on positive trade developments between U.S. and China,” said Peter Ng, senior currency trader at Silicon Valley Bank in Santa Clara, California. “Today’s CPI miss has added downward pressure on the dollar.”

The U.S. Labor Department said its Consumer Price Index, the government’s broadest inflation gauge, rose 0.2 percent in August, less than the 0.3 percent increase projected by analysts polled by Reuters.

Despite the CPI miss, traders did not change their view the Federal Reserve would raise key short-term interest rates by a quarter point to 2.00 percent-2.25 percent at its next policy meeting in two weeks. They also anticipated the Fed would increase rates for a fourth time this year in December.

An index that tracks the dollar against six major rivals .DXY broke below its 100-day moving average, which is seen as a bearish signal, to a near six-week low at 94.428. At 3:14 p.m. (1914 GMT), it was down 0.26 percent at 94.551.

The greenback weakened for a fourth straight day against the euro and sterling on hopes that Britain and the European Union would reach trade terms before Britain leaves the economic bloc next March.

The common currency rose to a two-week peak against the dollar, at $1.17010, before subsiding to $1.16900, up 0.54 percent on the day, EBS data showed.

The pound hit a six-week high versus the dollar, at $1.3124. It was last at $1.3105, up 0.44 percent.

Both the European Central Bank and Bank of England, as expected, left interest rates unchanged on Thursday.

The ECB signaled it was on track to dial back its bond purchases later this year, while the BOE highlighted concerns from Brexit.

Turkey’s central bank raised its benchmark rate by 625 basis points on Thursday in a bid to shore up the lira and soothe investor concern about President Tayyip Erdogan’s influence on monetary policy.

Turkey’s lira rallied 3.99 percent at 66.0921 per dollar TRYTOM=D4. It had hit a record low of 7.2400 in mid-August, raising investor expectations for the central bank to tighten monetary policy and arrest the currency’s slide.

Additional reporting by Saikat Chatterjee in London, Shinichi Saoshiro in Tokyo; Editing by Meredith Mazzilli and Leslie Adler

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