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Poor US inflation data hits the dollar in the forex markets

The much-awaited release of the American consumer price index (CPI) this week left the US dollar in a weak position against some of its major rivals.

Most analysts were expecting that the CPI would rise by 0.2% in June, especially given that it had managed to achieve a rise of 0.3% the month before in May.

However, the metric, which measures inflation, only went up by 0.1%, leading to a forex market drop for the dollar.

When compared to the dollar index, which brings together a range of different currencies as a point of comparison, charts showed it had plummeted by 0.2%. However, there was some hope for the dollar, and that lay largely in developments around the ongoing risk of a trade war between and the USA.

According to a report from Bloomberg, government officials in both the USA and in China have been speaking about picking up trade talks. If the trade talks were to occur, it would at least reduce the risk of a trade war occurring, and it may even lead to a reduction in the recently instated tariffs.

The main casualty of this development was the Japanese yen. The USD/JPY pair rose 0.39% yesterday and reached Y112.43.

Elsewhere in the forex markets, there was little to celebrate in North America, but conditions were looking positive in Europe.

The US dollar and Canadian dollar pair may have been expected to swing in Canada’s favour yesterday given the worse-than-expected CPI data from the US, but Canada was contending with a negative economic outlook of its own. One of the country’s major exports, oil, was hit by the news that the North African nation Libya is now going to re-start its oil production facilities, leading to the risk of increased competition. Libya is now set to start releasing a six-figure number of barrels of oil into the market on a daily basis, which could make a real dent in Canada’s output – with knock-on effects for the Canadian dollar.

It also comes after a senior US government official said that the country would consider allowing more countries to purchase oil from Iran. It currently puts pressure on other nations not to do this but changing its position, even slightly, could potentially make it easier for the Middle Eastern nation to resume supplying oil around the world. If that occurs, the outlook for the Canadian dollar could begin to look weak for the medium-to-long term.

In an interview, Secretary of State Mike Pompeo said: “There will be a handful of countries that come to the United States and ask for relief. We’ll consider it.”

Over in Europe, the forex day was relatively buoyant. The Euro/USD pair rose marginally by 0.09% and saw a high of $1.1683 at one stage.

With British Prime Minister Theresa May now seemingly safe from a leadership challenge for the time being, the British pound also rose in value. The pound and US dollar pair rose higher than the Eurozone equivalent, going up by 0.13% yesterday to $1.3222 at one stage.

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