US dollar slips for third day as bears ignore US inflation data

U.S. dollar notes at a currency exchange booth in Peshawar Pakistan

U.S. dollar notes at a currency exchange booth in Peshawar Pakistan

THE US dollar was stuck at a five-day low on Thursday after Federal Reserve chair Jerome Powell kept the door open for US interest rate cuts, though investors were wary of selling US dollars aggressively until a policy review later this month.

European shares ticked higher in early trade after a run of modest falls this week and as investors also digested an end of week blizzard of Chinese data from Asia.

The euro, as a result, has been on a downtrend since the beginning of the year, down 1.7%.

The data comes after a string of disappointing economic reports from around the globe, which showed that the global economy suffered from a protracted U.S.

Data out of China showed that Beijing's exports fell in June as the United States ramped up trade pressure, while imports shrank more than expected, pointing to further strains on the world's second largest economy. But analysts say the bigger risk may be that inflation beats expectations and causes the U.S. dollar to rebound.

This would mark the best monthly expansion in euro area industrial production since January, they added, though it will still represent a significant contraction from May 2018.

Sweden's crown also benefited from a relatively optimistic assessment of its economic outlook after minutes of the central bank's policy meeting.

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In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.1%.

Against a basket of other currencies, the USA dollar fell 0.2 per cent to 96.83, its lowest since July 5 and near the three-month low of 95.84 from late June.

Just as markets were reconsidering the likelihood of a large 50 basis points cut by the Federal Reserve this month, stronger-than-anticipated data out of the United States dampened those expectations. The dollar trimmed losses against the yen and euro after data showed U.S. underlying consumer prices rose 0.3% in June, the most in almost 1-1/2 years, with solid gains in the costs of a range of goods and service.

Market attention will be focused on comments by Chicago Fed President Charles Evans later on Friday and New York Fed President John Williams on Monday which will provide a chance to gauge how dovish the us central bank will be.

'If these Fed officials are not as dovish as Powell, and if the New York Fed's manufacturing survey on Monday proves stronger than forecast, they could show that the dollar weakening in response to Powell's congressional testimony was overdone'.

However, the single currency on Friday rose 0.2% versus the dollar to $1.1271, after earlier slipping following comments from ECB Governing Council member Ignazio Visco saying the bank will need to adopt further expansionary measures if the euro zone economy does not pick up.

Gold also benefited from the increased tensions in the Middle East as the USA is planning on sending military escorts to vessels in the Gulf after Iranian boats tried to intercept a British oil tanker on Wednesday. WTI oil was last quoted at $60.65 a barrel with Brent crude trading just above $67 a barrel. "If there was any doubt that the data was really compelling, especially the strong U.S. non-farm payrolls report last week, I think we had our answer yesterday, with Powell's pretty strong argument for easing as soon as July", said Mazen Issa, senior FX strategist at TD Securities in NY. Spot gold last traded up 0.5% at $1,410.99 per ounce.

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