Dollar Retreats After Hitting 20-year High

The U.S. dollar moved higher Wednesday morning after data from the Labor Department showed consumer inflation accelerated at a faster than expected pace in the month of June, raising hopes that the Federal Reserve will announce a sharp hike in interest rate later this month.

However, after hitting a two-decade high, the dollar quickly pared gains and dropped below the flat line.

Data from the U.S. Labor Department showed that the consumer price index shot up by 1.3% in June after jumping by 1% in May. Economists had expected consumer prices to leap by 1.1%.

With the bigger than expected monthly surge, the annual rate of consumer price growth accelerated to 9.1% in June, reflecting the biggest increase since November 1981. Economists had expected the annual rate of consumer price growth to accelerate to 8.8% in June from 8.6% in May.

The red-hot inflation data supported expectations for a more aggressive tightening path from the Fed in the coming months.

The dollar index, which rose to 108.58, dropped to 107.48 before recovering to 108.03, down just marginally from the previous close.

Against the Euro, the dollar weakened to $1.0123 from $1.001, but has recovered some lost ground now to trade around $1.0055, still down from Tuesday’s close of $1.0039. Data showed Eurozone industrial production rose 0.8% sequentially in May, well above expectation for a 0.2% increase.

The dollar is trading at $1.1888 against Pound Sterling, little changed from the previous close. Earlier, after firming to $1.1829, the greenback dropped to $1.1967 a unit of Sterling.

The UK economy recovered in May with more holiday bookings and visits to doctors, data published by the Office for National Statistics showed. Gross domestic product grew 0.5% from April, when output was down by revised 0.2%. Economists had forecast GDP to remain flat after April’s initially estimated 0.3% fall.

Against the Japanese currency, the dollar is stronger, fetching 137.38 yen a unit.

The Aussie is rougly flat with the AUD/USD pair trading at 0.6758.

The Swiss franc has firmed to 0.9789 a dollar, from 0.9818.

The Loonie has strengthened to 1.2976 against the Dollar, after the Bank of Canada hiked its benchmark rate by as much as 1%.