Dollar weakens despite rise in interest rate expectations

Dollar weakens despite rise in interest rate expectations
* Dollar falls as stocks rebound from CPI news
* U.S. core CPI posts largest gain in a year

(Updates news, quotes, table, prices)
By Kate Duguid
NEW YORK, Feb 14 (Reuters) - The U.S. dollar fell on
Wednesday despite a report of stronger-than-expected inflation
data and an increase in interest-rate expectations, raising the
possibility that the currency is in a period of secular
"We are in an environment where the dollar is weakening
regardless of the move in interest rates," said Alessio de
Longis, a portfolio manager for the global multi-asset group at
OppenheimerFunds in New York.
The announcement that the U.S. core Consumer Price Index
posted its biggest gain in a year boosted expectations that
price pressures may accelerate, prompting a faster pace of
interest rate increases from the Federal Reserve. The
possibility that the Fed would clamp down on inflation initially
drove up the dollar index.
But the dollar quickly pared those gains, falling to a
session low of 88.94 against a basket of currencies, even as
traders added to their bets on Fed rate hikes after the
inflation report. The dollar was last at 89.032.
U.S. short-term interest-rate futures fell on Wednesday
following the inflation report, adding to the conviction the Fed
will raise rates twice this year, and increasing the chance of a
third rate hike, based on a Reuters analysis of Fed funds
futures contracts traded at CME Group.
Analysts disagree on the reasons for the dollar's fall. De
Longis argued that the greenback is in a weakening cycle because
of the increased supply of dollars in foreign markets and
foreign investors' overweight positions in U.S. fixed income.
John Doyle, vice president of dealing and trading at Tempus
Inc in Washington, was not convinced of a secular downturn. The
dollar was the beneficiary of widening interest rate
differentials while the Fed was the only major central bank
raising rates. But "even though the U.S. Fed is outpacing other
central banks, they are no longer the only guest at the policy
tightening party," he said.
In that instance, the dollar's weakness on Wednesday could
be because the riskoff trades that investors put on immediately
after the CPI release "have come bouncing back, helped by equity
resilience," said Alan Ruskin, global head of currency strategy
at Deutsche Bank in New York.
After opening lower at the bell, the S&P 500 rose to
2,702.10, its highest since Feb. 7. The Dow Jones Industrial
Average followed the same trend, opening lower before
rising 1.2 percent above its last close.
As the dollar weakened, both sterling and the euro
recovered. The British pound was last at $1.40, up nearly
0.7 percent from Tuesday's close.
The single currency was at $1.245, up half a percent
from its last close, supported also by stronger-than-expected
euro zone industrial production data for December.
The yen rose to a 15-month high against the dollar at 106.70
earlier in the day. The Japanese currency was last at

Currency bid prices at 4:37PM (2137 GMT)
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Previous Change
Euro/Dollar EUR= $1.2450 $1.2350 +0.81% +3.78% +1.2465 +1.2277
Dollar/Yen JPY= 107.0300 107.8200 -0.73% -5.01% +107.8900 +106.7300
Euro/Yen EURJPY= 133.27 133.17 +0.08% -1.41% +133.3800 +131.6200
Dollar/Swiss CHF= 0.9294 0.9346 -0.56% -4.61% +0.9374 +0.9286
Sterling/Dollar GBP= 1.4001 1.3890 +0.80% +3.62% +1.4016 +1.3802
Dollar/Canadian CAD= 1.2497 1.2591 -0.75% -0.64% +1.2648 +1.2495
Australian/Doll AUD= 0.7927 0.7859 +0.87% +1.62% +0.7934 +0.7774
Euro/Swiss EURCHF= 1.1571 1.1547 +0.21% -1.01% +1.1585 +1.1499
Euro/Sterling EURGBP= 0.8891 0.8889 +0.02% +0.09% +0.8919 +0.8875
NZ Dollar/Dolar NZD= 0.7368 0.7272 +1.32% +3.98% +0.7379 +0.7243
Dollar/Norway NOK= 7.7923 7.8702 -0.99% -5.05% +7.9515 +7.7847
Euro/Norway EURNOK= 9.7012 9.7248 -0.24% -1.50% +9.7663 +9.7009
Dollar/Sweden SEK= 7.9489 8.0261 -0.17% -3.08% +8.1055 +7.9424
Euro/Sweden EURSEK= 9.8987 9.9152 -0.17% +0.61% +9.9649 +9.8767

(Reporting by Kate Duguid; Editing by Andrew Hay and Rosalba

First Published: 2018-02-14 02:59:59
Updated 2018-02-14 23:58:01

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