The US dollar dipped yesterday against European currencies after US inflation data pointed to a moderate pace of coming interest rate rises, with fresh White House turmoil adding pressure on the greenback, dealers said.
Wall Street stocks initially pushed higher after the US consumer price index (CPI) rose 0.25% in February, just as analysts had predicted, cooling from January’s jump of 0.5% which had sent markets around the world into a tailspin.
The inflation report “exactly matched expectations, and partially reverses some of the inflation concerns caused by last month’s employment and CPI report,” said Marvin Loh, a markets strategist at BNY Mellon markets.
The Federal Reserve is expected to raise its benchmark interest rates next week in the first of at least three hikes expected this year – and market watchers had been looking for data that could justify the central bank acting more aggressively.
But the inflation data “paints a picture of slightly softer demand in the US”, said market analyst David Madden at CMC markets, which would reduce the need to raise interest rates sharply.
The US inflation data came after a strong jobs report on Friday and US President Donald Trump’s decision to meet North Korean leader Kim Jong-un, both of which had helped fuel a surge in global equities at the end of last week.
The dollar was also hit by Trump’s announcement that he was replacing his top diplomat Rex Tillerson ahead of announced talks with North Korea.
“Both the dollar and the Dow Jones seemed a tad shaken by the firing of Tillerson, the latest in a string of high profile departures from the White House,” said analyst Connor Campbell at Spreadex.
Early gains by Wall Street stocks faded away in morning trading, with the Dow down 0.2% in midday trading.
The shakeup also did little to reassure European investors who have been watching anxiously as Trump and EU officials wage a rapidly escalating war of words over tariffs.
In European economic powerhouse Germany, the DAX stock market tumbled 1.6% at 12,221.03 as the euro strengthened, weighing on exporters who are also in the crosshairs of Trump’s trade barbs.
The London stock market also fell back, closing the day down 1.1% at 7,138.78 as the pound strengthened even as finance minister Philip Hammond said the British economy would grow slightly more than expected this year.
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