Dollar struggles for direction & sterling rises after data,”The dollar stabilized on Wednesday despite weak U.S. economic data, which increased expectations of rate cuts. Meanwhile, political uncertainties in Europe provided some support as they contributed to the euro’s weakening.”
Meanwhile sterling rose after data showed UK service inflation was stronger than expected.
U.S. retail sales barely rose in May and previous month’s figures were revised down, data showed on Tuesday, suggesting that economic activity remained lacklustre in the second quarter.
The euro was last marginally lower at $1.0732, while the dollar index was flat at 105.27.
“The yield spread between French and German government bonds, viewed as an indicator of potential budget crises in Europe, slightly narrowed from Monday but stayed near seven-year highs reached last week. Joseph Capurso, head of international and sustainable economics at Commonwealth Bank of Australia, commented on the weak U.S. retail sales, confirming earlier expectations.”
“Things are finally deteriorating. It looked like the U.S. consumer was never going to slow down, but looks like that’s exactly what happened now.”
Markets are now pricing in a 67 per cent chance the Fed will begin easing rates in September, according to the CME FedWatch tool, with nearly 50 basis points worth of cuts expected this year.
Sterling rose 0.20 per cent against the euro to 84.34 pence per euro and 0.15 per cent against the dollar to $1.2725 after data.
British inflation returned to its 2 per cent target in May for the first time in nearly three years, data showed on Wednesday, but underlying price pressures remained strong.
“This (service inflation figure), we think, will raise the bar for an August rate cut,” said Sanjay Raja, chief UK economist at Deutsche Bank Research.
