Dollar gains on euro as traders bet on less dovish Fed
U.S. producer prices were unexpectedly unchanged in June as an increase in the cost of goods because of tariffs on imports was offset by weakness in services.
Tuesday's release showed U.S. consumer prices increased by the most in five months in June amid higher costs for some goods, suggesting U.S. President Donald Trump's tariffs were starting to have an impact on inflation.
'Yesterday's reaction to the inflation data was very positive for the U.S. dollar overall,' said Eric Theoret, FX strategist at Scotiabank in Toronto. 'We're seeing an extension of the month-to-date move.'
Fed funds futures traders are now pricing in 44 basis points of cuts by year-end, little changed after Wednesday's data but down from around 48 basis points before Tuesday's consumer price data.
The dollar is also likely benefiting from traders that have been short the currency having to exit or cover positions as it rebounds from its recent lows.
'This is a market where you've got sentiment and positioning leaning pretty hard the other way, so I think from that perspective, it's also a bit vulnerable,' said Theoret.
The euro was last down 0.23 per cent on the day at $1.1572, the lowest since June 23.
Against the Japanese yen, the dollar weakened 0.03 per cent to 148.81. It earlier reached 149.18 yen, the highest since April 3.
Sterling fell 0.04 per cent to $1.3373 and reached $1.3361, the lowest since May 20.
Investors continue to focus on tariffs ahead of an August 1 deadline when many trading partners face higher trade levies.
Trump on Tuesday said the U.S. would impose a 19 per cent tariff on goods from Indonesia under a new agreement with the Southeast Asian country and more deals were coming, while offering fresh details on planned duties on pharmaceuticals.
In Japan, investors are focused on a potential power shift in upper house elections this weekend that could strain already frail finances, with long-dated yields soaring to all-time highs as the vote nears.
A longer-term negative for the U.S. dollar is also the likelihood that Fed Chair Jerome Powell's successor after his term ends in May could be more inclined to lower interest rates.
Trump has railed against Powell for months for not easing rates and the Trump administration has also criticised cost overruns on a $2.5 billion renovation of the Fed's Washington headquarters.
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