US Inflation disappoints Dollar Bulls

The US Dollar fell last Friday after downbeat US inflation data for July dampened expectations for another Fed rate hike this year. Data showed that July CPI rose 1.7% y/y, missing estimates for a gain of 1.8%, while monthly CPI rose 0.1%, less than the 0.2% forecast. Meanwhile, Minneapolis Fed President Kashkari said that the Central Bank has the luxury of waiting before raising rates given the undershoot in inflation, and Dallas Fed President Kaplan said that he’s willing to be patient on inflation developments.

The Dollar edged higher against the Japanese Yen on Monday, pulling away from a 4-month low of 108.72 hit on Friday, with rising tensions between the United States and North Korea seen as the key to the near-term outlook. The Yen is often sought in times of geopolitical tension or financial stress, because Japan is the world’s biggest creditor nation, and there is an assumption that Japanese investors would repatriate their foreign holdings in times of heightened global doubt.

Meanwhile, Oil prices slipped as a slowdown in Chinese refining activity growth cast doubts over its Crude demand outlook. Chinese refineries processed 0.4% more Crude Oil in July than a year earlier, the lowest amount since September 2016. Despite the possible slowdown in China, the IEA said last Friday that it expects 2017 Oil demand growth of 1.5 million bpd.

Sterling fell to a fresh 10-month low against the Euro on Friday as well, while investors added bearish bets against the British currency on concerns the economy may be struggling to gain momentum. The British Pound has lost more than 13% in trade-weighted terms since the June 2016 vote to leave the European Union, but Britain’s trade deficit with the rest of the world remains huge.