Dollar declines as new data shows US growth slowing down

THE dollar tumbled yesterday after a survey showed prices at the US factory gate slipped in July, reinforcing a view that the Federal Reserve may not need to raise interest rates further to combat inflation.

The dollar fell sharply after the core US producer price index (PPI) stripping out volatile food and energy prices fell 0.3% in July, the first monthly decline since last October and well below a 0.2% rise expected by economists.

Adding to the dollar’s woes, a separate survey from the New York Federal Reserve showed that manufacturing activity in August slowed to its weakest since June 2005.

“PPI is considerably softer than expected and combine that with the easing Empire State manufacturing index and it looks like the Fed has been prescient,” said Ron Simpson, managing director of currency analysis at Action Economics. “Slowing growth will lead to slowing inflation.”

After the data, federal fund futures implied that the market was seeing just a 24% chance that the Fed will raise interest rates again at its next meeting in September, down from a 42% chance just before the data was released.

Early yesterday in New York, the euro was up 0.5% on the day at $1.2784. The dollar was down 0.5% at 116.10 yen.

The market showed little reaction to separate data showing that the United States attracted a net $75.1 billion (€58.7bn) of capital inflows in June, more than enough to finance that month’s trade deficit of $64.8bn (€50.6bn).

US Treasury debt prices climbed yesterday after the data was released and on the reduced chances of a rate rise.

The Fed at a policy meeting last week paused in its campaign of interest rate hikes, saying in a statement that price inflation was expected to ease with a slowing economy.