FX round-up: US data-dump downs dollar, euro dips on taper angst

The dollar concluded a bad week with disappointing consumer price inflation reducing expectations for a rate hike this year, while the euro fell versus the pound on reports the European Central Bank will soon begin tapering its asset purchase programme.

A whole barrage of US data out on Friday all disappointed, with retail sales, consumer confidence and industrial production all undershooting consensus forecasts.

In particular, US consumer prices were unchanged for June at 0.1%, which was below the consensus forecast for the fourth straight month, while core CPI rose 0.1%, below the consensus of 0.2%.

Just after 1600 BST this had sent the pound shooting 1.13% higher to $1.3085, the euro-dollar 0.46% to $1.1451 and pushed the yen up 0.6% to ¥112.6.

The dollar index was down 0.5% at to below 95.30, levels last seen in September 2016.

Federal Reserve Chair Janet Yellen and her fellow rate setters will have much to ponder over the coming months as deflation described by policymakers as "transitory" is now in its fourth successive month, with a number of the Fed's Open Market Committee members having expressed concerns about inflation and Yellen saying this week that she is watching inflation very closely, although her preferred reading is the personal consumption expenditure index.

Yellen's acknowledgement on Wednesday that there are concerns within the Fed about persistent low inflation meant the currency was hit quite hard on Friday as traders revised lower their expectations for another rate hike this year.

"This comes at a time when traders were already doubting whether the Fed would follow through on plans for a third hike," said analyst Craig Erlam at Oanda.

He said Friday's numbers today will have done nothing to give policymakers any more confidence.

"While CPI may not be the Fed's preferred measure of inflation, it is released three weeks before the core PCE price index and therefore offers plenty of value. The PCE price index may be a little lower than its CPI alternative but they tend to follow similar trends and today's drop in headline CPI doesn't bode well for it."

While the yen, which has struggled in recent months, was performing well against the greenback, Erlam said there was "little reason to believe this is anything more than a correction".

As there was little UK news to chew on, sterling took full advantage to trading at a near 10 month high against the dollar and a number of other currencies, with cable up to 1.3081.

With the euro dampened by ECB taper angst, the pound rose 0.64% past the 0.876 mark for the first time since 20 June.

Following a report the previous day in The Wall Street Journal suggesting that European Central Bank chief Mario Draghi might signal it would start to taper its asset purchase programme at August's Jackson Hole Symposium in the States, a sources-based article from Reuters on Friday indicated the ECB was wary of putting an end-date on its'quantitative easing.

Three sources familiar with the discussions told Reuters the ECB was keen to keep its asset purchases open-ended instead of trying to set a potentially distant date for them to conclude.

That report from Reuters saw the yield on the benchmark 10-year Bund slip three basis points to 0.58%.