Forex - Dollar slumps on U.S. pricing data, euro zone growth rate

The dollar softened against most major currencies on Wednesday in a lackluster session that saw investors avoid the dollar after soft wholesale pricing data hit the wire and left investors guessing when the Federal Reserve will begin tapering stimulus programs later this year.

Stimulus tools such as the Fed's USD85 billion monthly bond-buying program weaken the dollar to spur recovery. 

The dollar took back some of its losses amid late-session sentiments that soft data notwithstanding, the Fed remains on track to tapering stimulus programs later this year.

In U.S. trading on Wednesday, EUR/USD was down 0.03% at 1.3258.

The Department of Labor reported that the U.S. producer price index came in flat last month, missing expectations for a 0.3% increase after a 0.8% increase in June.

The core producer price index eased up 0.1% in July, missing forecasts for a 0.2% increase.

Upon release, the numbers dampened expectations that U.S. recovery is strong enough for the Federal Reserve to begin tapering its USD85 billion-a-month asset-purchasing program at least in September when it holds its next monetary policy meeting.

The dollar, however, saw some support among others harboring sentiments that even if the Fed holds off on tapering at its September meeting, such a decision could likely come in December and usher in the end of ultra-loose monetary policy that has kept the greenback weak for years.


The euro and other higher-yielding currencies enjoyed support on data showing that the euro zone economy began expanding anew in the second quarter, breaking free from an 18-month recession.

The euro zone's gross domestic product expanded by 0.3% in the second quarter, outpacing market calls for quarter-on-quarter growth of 0.2%. 

France’s economy grew 0.5%, while Germany’s economy expanded by 0.7%.


The greenback, meanwhile, was down against the pound, with GBP/USDup 0.37% at 1.5506.

The U.K. unemployment rate remained unchanged at 7.8% in June, according to the Office of National Statistics, in line with expectations. 

The number of individuals claiming unemployment benefits fell by 29,200 in July, better than expectations for a decline of 15,000, which gave the pound support as did the minutes of the Bank of England’s July meeting, which showed that the decision to provide forward guidance on future rate increases was not unanimous.

The BoE has established conditions under which forward guidance on rates would not apply. One of these says bank will consider raising rates if medium term inflation expectations rise above 2.5% over 18 to 24 months.

Monetary Policy Committee member Martin Weale called for tougher measures to ensure that the pledge to hold rates at record lows did not lead to a pickup in inflation though he did say he accepted the principles of forward guidance.

Last week the BoE announced plans to keep interest rates on hold at record lows as long as the U.K. unemployment rate remains above 7%.

The dollar was down against the yen, with USD/JPY down 0.06% at 98.16, and up against the Swiss franc, with USD/CHF trading up 0.19% at 0.9350.

The dollar was down against its cousins in Canada, Australia and New Zealand, with USD/CAD down 0.14% at 1.0330, AUD/USD up 0.33% at 0.9142 and NZD/USD trading up 0.89% at 0.8035.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was down 0.03% at 81.76.

On Thursday, the U.S. will release data on consumer inflation, jobless claims, industrial production and manufacturing data from the New York and Philadelphia Federal Reserve branches.