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Dollar at 13-Month Lows; Loonie Gains on Rising Hike Prospects; Euro at Fresh High

Barring inflation and retail sales data out of Canada, today’s European session was a rather quiet one in terms of data releases. In the absence of data during the rest of the session, forex market participants placed their orders having in mind developments from yesterday’s European Central Bank meeting, as well as developments on the US political front.

The dollar index, which gauges the greenback against the currencies of six major US trading partners, fell to 93.99 today, a 13-month low. It last traded 0.3% down on the day, close to the aforementioned low. Expanding investigations into potential ties between US President Donald Trump and Russia seem to be weighing on the US currency as they’re interpreted as posing another hurdle to the promotion of pro-growth policies by the Trump administration. Dollar/yen posted a more than three-week low of 111.14 in today’s trading – it was last down 0.7%, looking set for its fourth straight day of declines. The dollar was also slightly down relative to sterling in afternoon European trading hours, with pound/dollar trading at 1.2990.

The euro built on momentum from yesterday’s rally earlier in the session, rising to a fresh 23-month high of $1.1676. The single currency later eased to last trade slightly up on the day versus the greenback. ECB head Mario Draghi not directly talking the currency down during yesterday’s press conference was seen as a positive sign by investors. The euro also hit an eight-and-a-half-month high relative to sterling as euro/pound reached 0.8990. The pair was last up 0.1% on the day.

Turning to today’s main data releases, the Canadian annual inflation rate fell relative to May’s 1.3% to reach 1.0% in June, as expected. June’s figure constitutes a 20-month low and stands at a distance in relation to the Bank of Canada’s 2% target. Falling gas prices contributed to the decline. Month-on-month, inflation was at -0.1%, again in line with projections and below May’s 0.1%. The core inflation measures that are closely monitored by the BoC didn’t fare as badly – specifically, CPI-common grew to 1.4% from 1.3% in May. When delivering its first rate hike in roughly seven years last week, the Canadian central bank expressed its view that recent weak inflation is of temporary nature.

Canadian retail sales rose by 0.6% month-on-month in May to hit a record C$48.91 billion. Sales comfortably exceeded expectations for an increase by 0.2% but grew less strongly than the 0.8% of the previous month. This is the third straight monthly increase in retail sales.

Market participants interpreted the above data as supporting the case for another rate hike by the BoC during its October meeting. Consequently, the Canadian dollar strengthened upon the release of the above data relative to its US counterpart with dollar/loonie eventually falling to 1.2548, close to the 15-month low from yesterday. The pair was last down 0.2% on the day.

Concluding with a glance at commodities, oil prices declined as a report indicated that supply by OPEC members will increase this month. WTI and Brent crude last traded at $46.15 and $48.59 a barrel, down 1.6% and 1.4% on the day respectively. Greenback weakness, helped push dollar-denominated gold higher. The precious metal recorded a fresh three-week high of $1251.99 an ounce during today’s trading – it traded close to this level in afternoon European trading hours.

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