Dollar Ending Week Near Low After CPI; Haven Currencies Retreat

Trading flows were moderate and price action extremely choppy, with the dollar declining to a fresh weekly low in late Friday trading after paring an earlier drop. Investors attempted to balance the impact of the economic data and shifting odds of interest rate hikes against a backdrop of belligerent rhetoric surrounding North Korea’s nuclear ambitions. The yen and the Swiss franc relinquished overnight gains after Russian Foreign Minister Sergei Lavrov said that Russia is doing all it can to avert conflict, Bloomberg reported.

• The dollar is lower vs all of its G-10 peers and on track to end a tumultuous week with a loss of ~0.4% after relinquishing gains scored following last week’s stronger-than-expected U.S. jobs report. Flows accelerated at times amid very choppy price action that signaled occasionally patchy liquidity. With risk appetites subdued, positioning is limited and flows driven largely by fast-money accounts, traders said
• 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. 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 he’s willing to be patient on inflation developments
• The weak CPI report does not bode well for the dollar, analysts said. Market-priced odds of a 2017 rate hike fell below 40%
• EUR/USD rose to a fresh session high at 1.1847 in afternoon trading, extending gains scored after the CPI data was released. The pair slowed as offers stacked from 1.1830 to 1.1850 capped gains, preventing EUR from completely reversing losses sustained after the jobs report
• As the calendar moves along, positioning may become more cautious ahead of ECB President Draghi’s appearance at the Kansas City Fed’s annual symposium at Jackson Hole, which takes place Aug. 24-26. Garnering less attention is an Aug. 23 appearance by the ECB chief in Lindau, Germany
• USD/JPY was trading near 109.00 after rising to a high at 109.40 shortly after a low for the day at 108.74. USD rebounded as Treasury yields rose sharply in morning trading, lifting the typically rate-sensitive pair, and price action in FX appeared consistent with stop-loss driven buying as the overnight high at 109.27 was eclipsed. Earlier, USD filled bids and stop-loss sell orders around 108.80, though it appeared there was further resting demand below the low, said one trader familiar with the transactions who asked not to be identified because not authorized to speak publicly
• The Swiss franc fell sharply in the session, reversing overnight gains. The haven currency reversed gains of as much as 0.4% vs USD to trade little changed before recouping some of the advance. The CHF declined as much as 0.5% vs the EUR after rising by a similar magnitude earlier in the day