US dollar stumbles, drops to more than one-year low as inflation eases in June

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) – The dollar crashed to its lowest in more than a year on Wednesday after data showed the rise in U.S. consumer prices moderated in June, suggesting the Federal Reserve may have to raise interest rates only one more time this year.

The dollar index dropped to as low as 100.54, the lowest since April 2022, and was last down 1% at 100.55, on track for its largest daily percentage loss since early February.

The greenback also hit its lowest against the Swiss franc since early 2015 after the inflation report. It was last down 1.3% at 0.8675 francs, having fallen to a session low of 0.8660 earlier, its weakest since the Swiss National Bank removed the peg from the Swiss currency in January 2015.

Data showed core U.S. consumer prices rose just 0.2% in June, compared with forecasts for a gain of 0.3%. The monthly rise in core prices was the smallest since August 2021. On an annual basis, U.S. core CPI advanced 4.8%, lower than market expectations for a 5% increase. That was also the smallest annual increase in more than two years.

“Today’s softer core inflation release reinforces our base case and the market’s initial read on the Fed’s last rate decision that the U.S. central bank will only be able to hike one further time this cycle,” wrote Simon Harvey, head of FX analysis at Monex Europe in London, in emailed comments.

The inflation report “resulted in the dollar extending its post-payrolls decline, with losses continuing to be most visible against currencies that are deeply undervalued and sensitive to U.S. yields, such as the Norwegian crown, Swedish crown, and Japanese yen,” he added.

U.S. rate futures still showed traders overwhelmingly expect the policy rate to rise a quarter point, to a 5.25%-5.5% range, at the Fed’s July 25-26 meeting, but now see about a 25% chance of another rate hike before year’s end, down from about 35% before the report.

The euro surged to its highest since March last year of $1.1134. The single European currency last traded up 1.1% at $1.1131.

Jordan Rochester, senior G10 FX strategist at Nomura in London, in a research note said he is raising his conviction on his long euro/dollar trade, targeting $1.14 by end-September. Previously, it was $1.12.

He said bad news for euro area growth has already been priced in, while in the United States, “disinflation pressures…are becoming clearer with core CPI data surprising markets to the downside.”

Against the yen, the dollar dropped to a six-week low of 138.17 yen. It last changed hands at 138.375, down 1.4%.

Sterling struck a fresh 15-month high of $1.30, last trading up 0.4% at $1.2984. The pound’s rally is being driven by expectations for the Bank of England to deliver more rate rises to tame UK inflation, which is the highest of any major economy.