The greenback retreated from its highest level against its major rivals after seeing a rise in U.S. inflation that had begun to subside in July, despite still being at a 13 -year high on an annual basis.
The consumer price index (CPI) rose 0.5% last month, in line with market expectations but down from the 0.9% rise recorded in June. Inflation declined in several components such as used car sales.
The core CPI excluding food and energy components also showed a decline last month, from 0.9% to 0.3%. This gives an indication that it has reached its price peak, and proves the Federal Reserve’s (Fed) statement that the rise in inflation is temporary.
However, with continued increases being recorded, market analysts see the central bank remaining on track to announce a reduction in bond purchases in the coming weeks.
While this decline was already expected, investors reacted strongly to the report. US stocks hit record highs, treasury yields declined and the USD also declined.
Meanwhile, the market was also seen with a statement by Fed policymaker Esther George who said the time had come to pull back the stimulus, and Robert Kaplan said the central bank should announce a timeline to reduce massive bond purchases next month and start lowering them in October. .
The Aussie and New Zealand dollars are among the major currencies that have benefited the most from the decline of the US dollar. However, the continued risk of Covid-19 is still depressing the Aussie dollar.
The pound will be the focus today which will see the publication of preliminary estimates of UK Gross Domestic Product (GDP) data which is expected to show a significant recovery in the second quarter.
