Currencies: Dollar gains as consumer inflation data expected to back interest-rate view

Currencies: Dollar gains as consumer inflation data expected to back interest-rate view

The U.S. dollar advanced modestly against major rivals in subdued Thursday action as U.S. inflation data and a downgrade for a European growth forecast took precedence over the trade-row concerns that had dominated recent forex dealings.

The ICE Dollar Index DXY, +0.16% which gauges the U.S. unit against six currencies and favors the euro, climbed by 0.2% to 94.91. A broader measure of the dollar against 16 currencies, the WSJ Dollar Index BUXX, +0.06% rose 0.1% to 88.51.

“Investors have been piling in on the dollar because of higher interest rates in the U.S. and expectations that monetary conditions will tighten further in the coming months,” said Fawad Razaqzada, currency analyst with Forex.com.

Consumer-level inflation data for June are due at 8:30 a.m. Eastern Time. A strong reading could further strengthen speculation the Fed will raise rates two more times this year, bringing the total to four hikes in 2018. Economists polled by MarketWatch expect consumer prices to have risen 0.2% month-on-month in June.

“With U.S. employment already near its potential, unemployment low and wages on the rise, inflation could accelerate in the coming months due to the increase in the price of goods and services as a result of the import tariffs… [T]his may further boost expectations over rising price levels and in turn tightening of monetary policy from the Federal Reserve, which already looks set to hike interest rates two more times in 2018,” Razaqzada said.

See: MarketWatch’s Economic Calendar

The euro EURUSD, -0.1371%  traded at $1.1656 compared to $1.1673 late in New York trading Wednesday.

The European Commission on Thursday cut its forecasts for the euro-zone’s economic growth this year, pointing to trade tensions with the U.S. and rising oil prices which push up inflation risks in the bloc.

The group now estimates that the 19-country euro zone will grow by 2.1% this year, lower than the 2.3% gross domestic product increase it had forecast in its previous estimates released in May, and further below the 2.4% growth recorded last year. In 2019 the bloc’s growth should further slow to 2%, they believe, unchanged from the previous forecast.

The euro had already turned more defensive, against the dollar in particular, on Wednesday after a report by Reuters suggested that policy makers at the European Central Bank are mixed about the timing of a possible rate-hike next year.

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