Dollar drifts lower after US data undermines Q2 growth hopes

An image of Euro banknotes being counted.
Leonhard Foeger | Reuters

The U.S. dollar held near its lowest since January against a currency basket on Thursday after soft U.S. producer prices data challenged hopes for better U.S. economic growth and supported the view that the Federal Reserve would delay hiking interest rates.

The U.S. Labor Department said its producer price index for final demand fell 0.4 percent last month, declining for the third time this year. While data showing U.S. jobless claims fell last week indicated solid footing in the U.S. jobs market, the inflation data reinforced views of a dovish Fed.

"We need to see clarity that the underlying growth trend in the U.S. economy is actually firmer than the Q1 number would suggest" in order for the dollar to resume its strengthening trend, said Jose Wynne, global head of FX research at Barclays in New York.

He said that Barclays still expects the Fed to make an initial rate hike in September, despite fading inflation pressures. The Fed has a 2 percent inflation target.

Keep faith in the greenback: Barclays
Keep faith in the greenback: Barclays

The U.S. dollar index, which measures the greenback against a basket of six major currencies, remained near a low of 93.133 hit earlier in the session. That level was the lowest since Jan. 22, when the European Central Bank announced a program of quantitative easing.

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The euro was last 0.35 percent higher against the dollar at $1.13965 after hitting a roughly three-month high of $1.14450 earlier in the session.

The latest U.S. producer inflation data intensified concerns that weak U.S. economic growth in the first quarter, which was attributed largely to harsh winter weather and low energy prices, persisted into the second quarter. On Wednesday, the government posted weaker-than-expected April U.S. retail sales.

The dollar index, which had rallied over 26 percent between early May 2014 and mid-March of this year largely on expectations of a coming Fed rate hike, was set to post its third straight session of losses.

"The likelihood of a rate hike is slowly being eroded by weaker or disappointing U.S. data," said Alfonso Esparza, senior currency strategist at Oanda in Toronto.

The dollar index was last down 0.18 percent at 93.452. The dollar was down 0.43 percent against the at 0.91300 after hitting a one-week low of 0.90785 franc earlier in the session.

The dollar was up 0.07 percent against the yen at 119.235 yen after hitting a two-week low of 118.885.