The U.S. dollar lost ground to other currencies including the euro, the yen and sterling after U.S. economic data provided further evidence that inflation was starting to ease, improving investor appetite for riskier assets and reducing demand for the safe-haven greenback.
The U.S. producer price index (PPI) increased 8.0% for the 12 months through October compared with economist expectations for 8.3% and September’s 8.4% increase, according to the Labor Department data.
The report, following last week’s smaller-than-expected increase in consumer prices for October, encouraged investors who have been closely monitoring inflation data for signs that the Federal Reserve could slow its interest rate hikes, which are aimed at dampening soaring prices. “Risk appetite has improved. That tends to weaken the dollar,” said Karl Schamotta, chief market strategist at payments company, Corpay. “
Fed officials will need to see many months of this before they pause the rate hike cycle but overall price pressures appear to be going in the right direction.” Schamotta says the dollar likely peaked in September but he also see a risk for a short-term “sell-off in risk-sensitive currencies and a rally in the dollar if there is a U.S. government funding squeeze before year end.”
Before the U.S. data the euro, sterling and the Swedish crown had already risen sharply against the U.S. dollar as traders assessed a slew of economic data, including UK and euro zone job figures plus German economic sentiment. The euro was last up 0.79% at $1.0407 after earlier touching its highest since July 1. In Europe traders were also eying encouraging data such as German economic sentiment ZEW index, which rose in November.
“Due to concerns about a deep recession over the winter the index had completely collapsed recently. In view of the mild start to the winter heating period and the well-filled gas stores analysts are likely to have got their hopes up that things might not turn out to be quite so bad,” said Antje Praefcke, FX Analyst at Commerzbank. Data also showed employment in the single currency area rose in the third quarter.
Jane Foley, head of FX strategy at Rabobank in London also pointed to other headlines supporting risk currencies against the dollar. She saw U.S. President Joe Biden’s summit meeting with Chinese leader Xi Jinping as an indication that tensions between the two countries may have cooled, and also mentioned Russia’s withdrawal from Kherson in Ukraine.
The dollar index, which measures the currency against six counterparts including sterling and euro, was last down 0.46% at 106.162 after earlier touching 105.34, its lowest point since August. The greenback was last down 0.68% against Japan’s yen at 138.975.
The Swedish crown rose sharply against the U.S. dollar after data showed inflation in Sweden rose less than expected in October. The dollar was last down 0.19% at 10.3831 crowns. Sterling was up 1.56% at $1.1941 after earlier rising as much as 2.27%, which put it at a three-month high against the dollar.
This was ahead of a tough UK government budget plan due out later this week and after data showing Britain’s unemployment rate unexpectedly rose and vacancies fell for a fifth report in a row as employers worried about the economy.