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Weekly outlook: August 14 - 18

Dollar slides as lacklustre U.S. inflation data dims rate hike hopes

Investing.com - The dollar slid against a basket of the other major currencies on Friday as weaker-than-expected U.S. inflation data tempered expectations for a third interest rate hike by the Federal Reserve this year.

A Labor Department report showed that U.S. consumer prices edged up 0.1% in July from the prior month, below the 0.2% increase forecast by economists.

Consumer prices were up 1.7% on a year-over-year basis from 1.6% in June.

The data was the latest in a string of weak inflation readings that investors worry will make the Fed more cautious about plans to raise interest rates again this year.

Futures traders are pricing in about a 35% chance of another rate hike by December, according to Investing.com’s Fed Rate Monitor Tool.

Expectations that rates will remain lower tend to weigh on the dollar by making U.S. assets less attractive to yield-seeking investors.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was down 0.33% at 92.99 late Friday. For the week the index shed 0.49%.

The euro moved higher against the dollar, with EUR/USD rising 0.42% to 1.1821. The euro was bolstered after Morgan Stanley raised its forecasts for the currency, predicting it would reach the 1.25 level against the dollar early next year.

The dollar ended flat against the yen, with USD/JPY at 109.19 after falling to a 16-week trough of 108.74 earlier.

The dollar was slightly lower against the Swiss franc, with USD/CHF last at 0.9616.

The yen and the Swiss franc posted large gains against the dollar for the week, rising 1.47% and 1.14% respectively as heightened tensions between the U.S. and North Korea sparked a flight to safety.

The currencies are often sought in times of geopolitical tension or market turbulence because both countries have large current account surpluses.

Meanwhile, sterling was slightly higher against the weaker dollar, with GBP/USD up 0.24% to 1.3008 late Friday after touching a three-week low of 1.2940 earlier.

The pound ended the week near ten-month lows against the euro, with EUR/GBP at 0.9086 after rising as high as 0.9119 earlier, the most since October 2016.

In the coming week, Wednesday’s minutes of the Fed’s latest meeting will be in focus as investors look for more hints on the timing of the next U.S. rate hike. A report on U.S. retail sales will also be closely watched.

Elsewhere, UK data on inflation and employment will be in the spotlight amid ongoing concerns over the economic fallout from Brexit.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.

Monday, August 14

New Zealand is to release data on retail sales.

Japan is to produce preliminary figures on second quarter growth.

China is to publish reports on industrial production and fixed asset investment.

Tuesday, August 15

The Reserve Bank of Australia is to publish the minutes of its latest monetary policy meeting.

In the euro zone, Germany is to release preliminary data on second quarter growth.

Switzerland is to release inflation data.

The UK is also to report on consumer price inflation.

The U.S. is to produce reports on retail sales and manufacturing activity in the New York region.

Wednesday, August 16

Australia is to release data on the wage price index.

The UK is to publish its monthly employment report.

The euro zone is to produce revised data on first quarter economic growth.

Canada is to report on foreign securities purchases.

The U.S. is to release data on building permits and housing starts and the Fed is to publish the minutes of its latest monetary policy meeting.

Thursday, August 17

New Zealand is to release data on producer prices.

Australia is to publish its monthly employment report.

The UK is to produce retail sales data.

The euro zone is to release revised inflation data and the European Central Bank is to publish the minutes of its latest monetary policy meeting.

Canada is to report on manufacturing sales.

The U.S. is to release data on jobless claims, industrial production manufacturing activity in the Philadelphia region. Dallas Fed President Robert Kaplan is also to speak.

Friday, August 18

Canada is to report on inflation and retail sales.

The U.S. is to round up the week with data on consumer sentiment.

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