13-7-2023 (NEW YORK) The U.S. dollar fell to its lowest level in over a year on Wednesday after the release of the U.S. consumer price index (CPI) for June, which showed a decline in the rate of inflation to the lowest level since 2021. According to the CPI released by the U.S. Bureau of Labor Statistics, the U.S. annual inflation slowed to 3% last month, the smallest annual pace since March 2021. Core inflation, which excludes volatile food and energy prices, also fell to 4.8% annually, below a consensus projection of 5%.
The dollar index, which measures the greenback against six major peers, decreased 1.19% to 100.5220 in late trading, marking its largest daily percentage loss since early February. The euro increased to 1.1137 dollars from 1.0999 dollars in the previous session, and the British pound was up to 1.2991 dollars from 1.2928 U.S. dollars in the previous session. The U.S. dollar also hit its lowest against the Swiss franc since early 2015, decreasing to 0.8670 Swiss francs from 0.8799 Swiss francs on Wednesday.
The decline in the U.S. dollar was attributed to the softer U.S. inflation report, which intensified bets that the Federal Reserve’s rate hike cycle may soon be nearing an end, according to Matthew Ryan, head of market strategy at global financial services firm Ebury. However, Federal Reserve Bank of Richmond President Thomas Barkin cautioned that backing off too soon on rates would require the Fed to do even more in the future, since the U.S. inflation rate is still too high. Neel Kashkari, Minneapolis Federal Reserve president, also warned that banks need to be ready for entrenched inflation.
The Bank of Canada raised its key interest by another 25 basis points to 5% on Wednesday and resumed its rate hikes in June, causing the U.S. dollar to decrease to 1.3192 Canadian dollars from 1.3239 Canadian dollars in late New York trading. The U.S. dollar bought 138.3180 Japanese yen, lower than 140.4630 Japanese yen of the previous session.
The decline of the U.S. dollar against major currencies is expected to impact international trade and investment and could lead to changes in global financial markets. The Federal Reserve’s response to the current inflation situation will be closely watched by financial analysts and investors around the world.
