U.S. Dollar Mixed After CPI Data; Fed Decision Eyed

09:41, 17th September 2014

(RTTNews) - The U.S. dollar traded mixed against its key counterparts on Wednesday, after data showed an unexpected decline in the U.S. consumer price inflation in August. Traders await the outcome of the Fed's two-day policy meeting, due later in the day, for signals on outlook for interest rates.

With a substantial decrease in energy prices more than offsetting higher prices for food and shelter, the Labor Department released a report showing an unexpected drop in U.S. consumer prices in the month of August.

The Labor Department said its consumer price index dipped by 0.2 percent in August after inching up by 0.1 percent in July. The modest drop came as a surprise to economists, who had expected consumer prices to come in unchanged.

The CPI increased 1.7 percent over year in August, after rising 2.0 percent in July. The index was also below the expected 1.9 percent increase.

The Fed is targeting an inflation goal of 2 percent.

Markets participants await cues from the Federal Reserve meet as to when the Fed would likely hike interest rate. It is speculated that the Fed will start hiking rates sooner than earlier thought, perhaps as early as next Spring.

The greenback extended its early slide against the pound, touching nearly a 2-week low of 1.6350. This is 0.5 percent lower than the yesterday's closing value of 1.6273. If the greenback continues its slide, 1.64 is seen as its next support level.

Policymakers of Bank of England split on rate decision again in September as two members preferred a quarter point rate hike, minutes from the bank's latest monetary policy meeting showed.

Ian McCafferty and Martin Weale sought to raise key rate by 25 basis points, while all other seven members voted to keep the rate at 0.50 percent. All nine members voted to maintain the size of quantitative easing at GBP 375 billion.

Although the greenback ticked down to 0.9322 against the franc immediately after the data, it reversed its direction in a short while. The pair was trading at 0.9344, compared to Tuesday's closing value of 0.9324.

The dollar resumed its early slide against the European currency, reaching as low as 1.2980. The pair was quoted at 1.2955 when it closed yesterday's deals. On the downside, 1.31 is seen as the greenback's next support level.

Eurozone inflation remained stable at 0.4 percent in August, final data from Eurostat showed.

The statistical office earlier estimated an annual rate of 0.3 percent for August.

The greenback that spiked up to a 2-day high of 107.35 against the yen at 6:00 am ET briefly pared its gains and has stablised thereafter. The greenback-yen pair finished yesterday's trading at 107.11.

The U.S. NAHB housing market index for September is due shortly.