U.S. Dollar Fell Due to the U.S. Inflation Data

The U.S. dollar fell in early European trading on August 12, as signs of cooling U.S. inflation relieved the pressure on the country’s central bank to start reining in its massive bond-buying program.

The dollar index, which tracks the U.S. currency against a basket of six other currencies, traded around 0.1% lower. At 2:15 AM ET, it stood at 92.898. The index retreated from Wednesday’s high of 93.195, a level not seen since the start of April.

The U.S. consumer price index rose 0.5% in July after climbing 0.9% in June, the largest decline in the month-to-month inflation rate in 15 months. Without considering the volatile food and energy components, the U.S. consumer price index rose 0.3%. That was the smallest gain in several months and the first deceleration in the so-called core CPI since February.

Fed Chair Jerome Powell likes to say that high inflation numbers will turn out to be transitory as the economy reopens. The figures mentioned above will provide some support to this view. That said, the weakness in the U.S. dollar is limited, with many analysts still expecting the Fed to announce a tapering of stimulus in 2021.

Dollar, Pound, and Lira

The GBP/USD fell to 1.3868 despite the country’s GDP growing 4.8% in the second quarter. In the first quarter, the U.K.’s GDP fell 1.6%. The report regarding the second quarter is likely to invigorate discussions about fewer asset purchases from the Bank of England.

The USD/TRY dropped 0.2% to 8.6079 ahead of the Turkish central bank meeting on Thursday. There are expectations that the central bank plans to keep its benchmark interest rate steady at 19%. The country’s central bank raised its inflation expectations in its latest quarterly report on July 29.  But the central bank expects a significant drop in price growth in the final quarter.