LONDON (Thomson Financial) - The dollar remained stronger against most currencies after a string of upbeat US economic data, including another rise in US CPI, which suggests the Federal Reserve will not cut interest rates in coming months.
US CPI rose 0.1 pct from June to July, while core CPI was up 0.2 pct, both rates in line with analyst expectations. The three-month annualised rate has risen for the third consecutive month to 2.5 pct.
'The pattern gives backbone to the Fed's continued insistence that a 'sustained moderation' in the inflationary environment may not yet have taken hold,' said Kenneth Beauchemin at Global Insight.
Lower energy prices were behind the moderate monthly gains, but a wide range of consumer products saw price increases.
'With so many categories increasing, it's hard to characterize the outlook on core inflation as benign. Credit events may yet overrule, but from an inflation perspective, the Fed has no business contemplating a rate cut,' said Jeoff Hall at IFR Markets.
Other data was also dollar-supportive this afternoon. The TICS figures showed overseas demand for US long-term securities remained very strong at 121 bln usd in June, just below May's 126 bln usd. Analysts said this suggests that there are no signs of any external funding problems with respect to the overall balance-of-payments. Meanwhile, the Empire State manufacturing index slipped by less than expected in August, while US industrial production rose in July, all dollar-supportive news.
Traditionally bought in times of uncertainty in global financial markets, the dollar also remained strong after rallying for several days, during which central banks were required to inject money into money markets in order to keep liquidity sufficient in the financial system. How long this risk-aversion will last will determine the dollar's future behaviour.
Elsewhere, the pound was weaker after minutes to the Bank of England's last policy meeting showed that all the rate-setters had voted to keep rates unchanged, and that a hike hadn't even been considered.
Along with a further fall in earnings growth data in the morning, the news made a further interest rate hike in the UK more unlikely. This mood is reflected in the euro zone, where weak GDP data and the ongoing credit market troubles suggest interest rates may be nearing their peak.
'The emerging trend in Europe appears to be that the tightening cycle appears to have reached its final destination and rates have probably peaked,' said David Brown at Bear Stearns (nyse: BSC - news - people )
'The latest market and fundamental conditions leave us more inclined to can the last quarter point hikes we had been looking for in the euro zone and UK,' said Brown.
London 1203 GMT London 1203 GMT
US dollar
yen 117.29 up from 116.75
sfr 1.2126 down from 1.2166
Euro
usd 1.3479 up from 1.3474
yen 158.10 up from 157.33
sfr 1.6416 up from 1.6385
stg 0.6766 down from 0.6779
Sterling
usd 1.9922 up from 1.9882
yen 233.66 up from 232.10
sfr 2.4269 up from 2.4176
Australian dollar
usd 0.8244 up from 0.8222
stg 0.4138 down from 0.4156
yen 96.58 up from 95.99
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