NEW YORK: The dollar inched lower on Thursday in thin summer trading, as its outlook remained grim after Federal Reserve Chair Jerome Powell's bleak comments on the US economy, which bolstered expectations of an interest rate cut later this month.
Since the middle of May, the dollar index has fallen 1.6pc, with the greenback down 2.6pc against the yen.
The dollar, however, trimmed losses against the yen and euro earlier on Thursday after data showed US underlying consumer prices rose 0.3pc in June, the most in nearly 1-1/2 years, with solid gains in the costs of a range of goods and service.
In another positive economic report, initial weekly jobless claims fell to a seasonally adjusted 209,000 for the week ended July 6, the lowest since April.
The inflation data, however, had little bearing on a widely expected view of an interest rate decrease this month at the Fed's next monetary policy meeting, analysts said. That potential rate cut would be the first in a decade.
"It's unlikely the Fed will be swayed from lowering interest rates as an insurance policy against future economic weakness," said Matthew Eidinger, FX trader at Cambridge Global Payments in Montreal.
In testimony to Congress on Wednesday, Powell pointed to "broad" global weakness that was clouding the US economic outlook amid uncertainty about the fallout from the trade conflict with China and other nations.
His comments affirmed market expectations - money markets expect one rate cut later this month and a cumulative 68 basis points of cuts until the end of 2019 - but market watchers said Powell's views will drive the dollar.
"If there was any doubt that the data was really compelling, especially the strong US nonfarm payrolls report last week, I think we had our answer yesterday, with Powell's pretty strong argument for easing as soon as July," said Mazen Issa, senior FX strategist at TD Securities in New York.
The Fed chief gave a second day of testimony to members of Congress on Thursday, and generally reiterated comments he made the previous day.
In afternoon trading, the dollar index was slightly lower at 97.06, after earlier falling to a one-week low.
The dollar was flat versus the yen at 108.45 yen, and was likewise little changed against the Swiss franc at 0.9899 franc.
The euro, meanwhile, was up 0.1pc against the dollar at $1.1256, even as expectations grew that the European Central Bank would loosen policy.
Focus has turned to the release of the ECB's June minutes and whether the bank has started discussions about a return to asset purchases.
Sterling rose from six-month lows to $1.2523, up 0.1pc on the day. But it remains down for the week, amid Britain's economic gloom and a fast-approaching Brexit deadline.
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