Dollar slips for third day on U.S. rate cut bets

NEW YORK (Reuters) – The dollar fell for a third straight session on Friday, still pressured by expectations the Federal Reserve will start cutting interest rates at a monetary policy meeting later this month.

Against a basket of other currencies .DXY, the dollar fell 0.1% to 97.004, and also posted losses against the yen and Swiss franc.

The dollar briefly trimmed losses after U.S. data showed producer prices rose slightly in June, up 0.1% following a similar gain in May. In the 12 months through June, the PPI rose 1.7%, the smallest gain since January 2017, slowing further from a 1.8% increase in May.

“Evidence of higher inflation will be warmly received by the Fed,” said Joe Manimbo, senior market analyst, at Western Union Business Solutions in New York.

But until the Fed’s preferred gauge of inflation, the core personal consumption expenditures price (PCE) index, shows convincing signs of heating up from a low 1.6%, the Fed is unlikely to change its stance on cutting rates as soon as later this month, he added.

The producer prices data followed a report on Thursday showing the core U.S. consumer price index, excluding food and energy, rose 0.3% in June, the largest increase since January 2018, data on Thursday showed.

The CPI reading pushed U.S. Treasury yields higher, but money markets still indicated one rate cut at the end of July and a cumulative 64 basis points in cuts by the end of 2019, especially after Fed Chairman Jerome Powell flagged such a move in his two-day testimony before Congress this week.

The dollar’s weakness revived carry trades, where investors borrow in low-yielding currencies such as the Swiss franc and the euro to purchase higher-yielding ones such as the Australian or New Zealand dollars.

The euro slipped versus the dollar after European Central Bank Governing Council member Ignazio Visco said the ECB will need to adopt further expansionary measures if the euro zone economy does not pick up and will consider its options “in the coming weeks”.

The single currency EUR= was last at $1.3051, down 0.1%.

The market has been monitoring Fed speakers. Chicago Fed President Charles Evans said the U.S. economy still has “very solid fundamentals” with a vibrant labor market. He said he viewed the Fed’s monetary policy as neutral, but it could be more accommodative if the goal is to lift inflation.

New York Fed President John Williams will speak on Monday.

(Graphic: U.S. real interest rates and DXY – tmsnrt.rs/32niorZ)

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