Dollar steady after volatile week; CPI data looms large

Investing.com - The U.S. dollar steadied Friday, trading near a one-month high after stronger than U.S. jobless claims allayed fears of a looming recession in the world’s largest economy.  

At 04:15 ET (09:15 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded largely unchanged at 103.007, not far from levels seen before Friday’s labor market release. 

Dollar steadies after volatile week

Initial claims for state unemployment benefits fell 17,000 to a seasonally adjusted 233,000 for the week ended Aug. 3, data showed on Thursday, the largest drop in about 11 months. 

This helped allay fears that the U.S. economy was heading for a hard landing and that the Federal Reserve was behind the curve with its decision not to cut rates late last month.

“The abnormally large reaction to jobless claims figures yesterday was a testament to markets' extremely elevated sensitivity to all sorts of indications on the US macro outlook right now,” said analysts at ING, in a now.

Attention will turn next week on the latest release of consumer prices, as traders look for more guidance towards the Fed’s likely future actions.

“We can reasonably expect the market reaction to next week’s US core CPI numbers to be significant even for small (second decimal of a percentage point) deviations from the consensus 0.2% MoM,” added ING.

The odds of the Federal Reserve cutting interest rates by 50 basis points at its next policy meeting are currently just above 50%, according to the CME Group's (NASDAQ:CME) FedWatch Tool, with a 25 basis point cut now seen as having a 46% probability.

Italian consumer prices fell in July

In Europe, EUR/USD slipped slightly to 1.0917, having soared as high as 1.1009 for the first time since Jan. 2 at the start of the week.

The European Central Bank started cutting interest rates in June, and many expect the policymakers to agree to another reduction in September.

Italian EU-harmonised consumer prices fell 0.9% month-on-month in July and were up 1.6% from the year earlier, suggesting inflationary pressures were limited in the eurozone’s third-largest economy.

GBP/USD rose 0.2% to 1.2768, continuing the 0.5% rally overnight that yanked it back from a more than one-month low. 

However, it remained on course for small losses this week, which would be a fourth straight week of declines.

USD/JPY trades above lows

In Asia, USD/JPY fell 0.1% to 147.20, but was trading well above lows of around 141.60 hit earlier in the week.

The yen’s turnabout came as BOJ officials said they would not hike interest rates during market volatility, tempering a hawkish message from the central bank during an end-July meeting. 

But despite weakening this week, the yen was still sitting on stellar gains against the dollar over the past month, especially as the global carry trade began to unwind. 

USD/CNY edged lower to 7.1739, with the yuan helped by data showing the Chinese consumer price index grew more than expected in July, while the producer price index inflation fell slightly less than expected.