Dollar slides against euro and sterling

The US dollar initially rose after the release of a batch of economic data, but has weakened against several major currencies as the trading day in New York has progressed.

Trading in the US dollar has been volatile today, with EUR/USD dropping as low as 1.3205 in the aftermath of the release of jobless claims data earlier today. The strength of that report, which showed the number of first-time benefit claimants fell sharply to 320,000 last week, served to boost speculation that the Fed will dial back on its monthly bond-purchases in September.

Inflation data that was in-line with expectations at +0.2% in July also appeared to counter recent arguments that inflation was too low for tapering to occur imminently.

Manufacturing data was not so strong, however, with a couple of widely-followed regional manufacturing surveys coming in below expectations for August and the manufacturing component of the industrial production report declining 0.1% in July.

The movement of the dollar suggests that market participants have rethought how strong the data was on balance, with EUR/USD rising 0.62% to 1.3337 by mid-afternoon in New York. The pound also strengthened against the dollar, advancing to 1.5642, a gain of 0.9%.

President of the St Louis Fed James Bullard said in a speech today that the Fed should hold off from tapering until there is further evidence of economic recovery and of inflation returning to target levels. This would appear to mean that Mr Bullard will not vote for a reduction in the monthly bond purchases at next month’s FOMC meeting.

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