The US dollar declined for a second consecutive day on Thursday as mixed economic data failed to support a bigger rally following the Federal Reserve’s decision to keep interest rates at record lows.
The US dollar index, a trade-weighted index of the dollar against a basket of currencies, declined 0.5% to 93.83. The dollar index has declined 1.4% since Wednesday afternoon, when it was around 95.20.
The dollar declined against all of its major peers on Thursday. The EUR/USD advanced 0.6% to 1.1406, the GDP/USD advanced 0.3% to 1.5885, the USD/JPY declined 0.4% to 122.88 and the USD/CHF fell 0.5% to 0.9181.
A cautious Federal Reserve drove the value of the US dollar down on Wednesday, as policymakers opted to hold interest rates at 0.25% and downgraded their 2015 GDP outlook. The Fed expects the US economy to grow just 1.8% to 2% this year, down sharply from the March forecast of 2.3% to 2.7%. The downward revision accounts for the 0.7% annual contraction in GDP in the first quarter.
However, the Fed also set the stage for at least one rate increase this year, according to the “dot plot” summary of interest rate expectations. Policymakers were split evenly on one, two and three rate hikes this year, leading many analysts to speculate that September would mark the first rate adjustment in more than six-and-a-half years.
The dollar’s descent continued on Thursday after the Department of Commerce said inflation rose less than forecast in May. The consumer price index (CPI) of goods and services rose 0.4% from April, up from 0.1% the previous month but slightly below forecasts calling for 0.5%. Compared to May 2014, the CPI rate was flat, up from -0.2% the previous month. Economists forecast an annual CPI rate of 0.2%.
So-called core CPI, which excludes volatile goods such as food and energy, rose 1.7% annually, official data showed.
Separately, the Department of Labor said initial jobless claims declined by 13,000 to a seasonally adjusted 267,000 in the week ended June 13, adding further evidence of a tighter labour market. That was the 15th consecutive week jobless claims held below the key 300,000 threshold. The 4-week average for claims decreased by 2,000 to a seasonally adjusted 276,750, official data showed.
Based out of Toronto, Canada, Husni Sam Borji is senior macroeconomics analysts who contributes regularly to TradersDNA, where he examines the global financial markets. Husni Sam has authored dozens of government reports and industry whitepapers, as well as thousands of financial articles. Husni Sam holds a BA from the University of Windsor and a Master’s degree in Economic Public Policy from McMaster University.
His expertise includes macroeconomics, fundamental analysis, industry research and global political economy.