CURRENCIES: Dollar Weaker After Economic Data; British Pound Jumps

Bank of England signals rate hike on the way

The U.S. dollar put in a mixed performance versus major rivals following a knee-jerk spike on the back of economic data earlier in the session on Thursday. including a stronger-than-expected rise in consumer price inflation for August.

The consumer-price index surged 0.4% in August (http://www.marketwatch.com/story/higher-rents-gas-boost-inflation-in-august-cpi-shows-2017-09-14). Economists polled by MarketWatch had forecast a 0.3% rise. The core index, however, which strips out volatile food and energy prices, inflation on the other hand was in line with forecasts at 0.2%.

The divergence between the headline and core figures suggests some impact from Hurricane Harvey, which pushed up gasoline prices, market participants said.

"There was some hurricane noise in this," Brad Bechtel, managing director in FX at Jefferies, said. "It was definitely positive, but it was also only one report. We have to wait and see what else the fall brings."

In other data, first-time jobless claims (http://www.marketwatch.com/story/us-weekly-jobless-claims-drop-ahead-of-irma-2017-09-14) for the week ending 9 Sept. came in at 284,000, below consensus estimates of 300,000.

Read:Why Harvey and irma won't change the Fed's rate-raising timeline (http://www.marketwatch.com/story/why-harvey-and-irma-wont-change-the-feds-rate-raising-timeline-2017-09-13)

The ICE Dollar Index , which measures the greenback against a basket of six rival currencies, lost 0.4% to 92.123, after briefly spiking to 92.636. The knee-jerk jump may have also lead to some profit-taking, Bechtel added.

"The weakness of the dollar throughout 2017 has been on the disappointment of Trump's failure to achieve tax reform or fiscal stimulus, but also the concerns over subdued U.S. inflation," said Richard Perry, market analyst at Hantec Markets, in a note ahead of the CPI release.

"The expectations for a Fed hike in December have been seriously questionable, however, if these two key factors of tax reform and U.S. inflation that have driven dollar weakness can be turned around, then the dollar may be able to drive a sustainable recovery," he added.

The euro bought $1.1916, up from $1.1885 late Wednesday in New York, after trading below $1.19 for much of the session.

Meanwhile in the U.K., the Bank of England kept its benchmark interest rate unchanged, but hawkishly suggested that rates could rise faster than anticipated by the market. In response, the British pound shot up 1.4% to $1.3394, compared with $1.3210 late Wednesday in New York.

"If three or more members opt for higher rates to divert the inflation from the 3% level, the pound could rally significantly. In this scenario, the next important technical level stands at $1.3420," said Ipek Ozkardeskaya, senior market analyst at London Capital Group, in a note. U.K. inflation rose to 2.9% in August. The BoE is next due to meet on 2 November.

Read:Ditch the dollar if you're betting on interest rate normalization (http://www.marketwatch.com/story/ditch-the-dollar-if-youre-betting-on-interest-rate-normalization-analyst-says-2017-09-14)

In other central bank news, the Swiss National Bank kept interest rates on hold as well. However, the SNB said it's ready to intervene in the currency market (http://www.marketwatch.com/story/snb-holds-rates-still-ready-to-intervene-on-franc-2017-09-14) if necessary to weaken the Swiss franc, which it continues to see as overvalued.

The buck strengthened against the Swiss franc in response, buying 0.9638 francs, up from 0.9641 francs on Wednesday.

Read:Why the Swiss central bank may be betting on a stronger euro (http://www.marketwatch.com/story/why-the-swiss-central-bank-is-betting-on-a-stronger-euro-analysts-say-2017-09-11)

The dollar also rose against the Japanese yen after North Korean threatened to sink Japan and reduce the U.S. to "ashes and darkness" in response to the latest round of U.N. sanctions against Pyongyang. The dollar jumped to Yen110.56 from Yen110.49 late Wednesday in New York. Throughout the day it hit an intraday high of Yen111.03, a level that hadn't been seen since July.

"It's also roughly the 50% retracement of the decline since the mid-July high near Yen114.40," analysts at Brown Brothers Harriman led by Marc Chandler wrote in a note.

(END) Dow Jones Newswires

September 14, 2017 16:14 ET (20:14 GMT)