Dollar hovers near 11-week low on Fed rate cut bets

Daniel Fowler
June 12, 2019

"They devalue their currency, they have for years: It's put them at a tremendous competitive advantage". Ongoing tensions between the US and China and the prospect that US President Trump will look to impose tariffs on Japan and Europe, however, continues to weigh on risk sentiment.

The Fed raised rates four times past year, with the last hike in December putting the federal funds rate in the 2 ¼ to 2 ½% range.

The Dollar extended earlier gains during noon trading Wednesday even after official inflation figures surprised on the downside for the month of May, although the miss was miniscule and might itself have disappointed those betting the Federal Reserve (Fed) will cut US interest rates this year.

What's less certain is when the Fed will act and how big any cut will be - a more traditional 25 basis point move or a bolder, 50 basis point reduction created to get a bigger bang for the buck.

He has repeatedly called on the independent central bank to ease monetary policy and attempted to fill its policymaking board with political allies.

Fed Chair Jerome Powell and other officials insist they can only consider what is happening in the economy and the appropriate policy response, and not try to second guess what the administration does or might do. An increase in prices could temper bets for rate cuts as the Fed uses rate hikes to contain inflation.

While some investors were still jumping into a rally sparked by a U.S. -Mexico trade and immigration agreement reached on Friday, others were looking ahead to the June 18-19 Fed meeting and expectations of trade talks between the United States and China leaders later in the month.

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USA inflation rose by 0.1% in May, down from 0.3% in April but in line with the market consensus, Bureau of Labor Statistics data shows.

-Economists surveyed by Bloomberg had forecast the core gauge would rise 0.2 per cent from the prior month and 2.1 per cent from a year earlier, with corresponding gains of 0.1 per cent and 1.9 per cent projected for the broader index.

Gasoline prices fell 0.5 per cent in May after rising 5.7 per cent in April.

The 0.1 percent increase was the smallest increase since January, MarketWatch reported, matching its analysts' forecast.

The so-called core CPI was held down by a sharp decline in the prices of used motor vehicles and trucks as well as medical care products.

The index for used cars and trucks slumped 1.4% in May, the fourth straight decline.

President Donald Trump complained Monday that President Xi Jinping enjoys a major advantage in the U.S.

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