Dollar notches biggest weekly drop since November after fall in inflation

Receive free Markets updates

We’ll send you a myFT Daily Digest email rounding up the latest Markets news every morning.

The dollar steadied on Friday following several daily declines, but had its worst week in eight months as traders reined in their bets on further interest rate rises from the Federal Reserve.

An index tracking the currency against a basket of six peers has fallen 2.2 per cent over the past five sessions, its worst run since it dropped 4.1 per cent in a week in November.

The dollar index added 0.2 per cent on Friday, at the end of a week in which economic data showed further signs of cooling inflation, with producer and consumer prices having fallen more than expected in June.

“Dollar long positions are evaporating rapidly, with [producer price] numbers all but confirming the disinflationary narrative in the US,” said Francesco Pesole, currency analyst at ING. 

June’s inflation figures “reinforced our view that recent dollar weakness will persist”, said Mark Haefele, chief investment officer at UBS Global Wealth Management. Sterling, the yen and the Swiss franc all stood to benefit, as did gold, which tends to rise in price as the dollar declines, Haefele added. 

Wall Street stocks reversed earlier gains as investors combed through the latest quarterly results from some of the country’s biggest banks.

Wall Street’s benchmark S&P 500 was down 0.1 per cent on Friday, but added 2.4 per cent in the week. The tech-heavy Nasdaq Composite gave up 0.2 per cent on Friday, but its 3.3 per cent gain over the past five sessions marked its biggest weekly jump since the end of March.

Shares in JPMorgan rose 0.6 per cent after it reported a 67 per cent jump in year-on-year net income to $14.47bn, far ahead of analysts’ estimates of $11.9bn.

Wells Fargo, which was down 0.3 per cent, said its net income surged 57 per cent from a year ago to nearly $5bn. Citigroup’s profits fell more than a third in the second quarter, sending its shares down 4 per cent, while State Street fell by 12.1 per cent on rising costs. Asset manager BlackRock’s net income rose 27 per cent, but its shares slid 1.6 per cent.

The banks’ second-quarter results come at a time of heightened scrutiny of lenders’ balance sheets following the collapse of several regional banks in the spring. Banks are also under pressure to raise rates on consumer deposits given they have begun to charge more for loans as the Federal Reserve has raised borrowing costs.

Keith Buchanan, senior portfolio manager at Globalt Investments, said strong results in the banks’ lending divisions point to strength in the US economy despite elevated interest rates.

“The consumer [lending] segment generally saw very healthy activity,” as well as loans to small businesses and middle market firms. “That’s what drives the US economy,” he said.

“I think [the Fed] created a Goldilocks environment for economic growth and arresting inflation.”

Still, a rally in US stocks this week in the face of high interest rates has stoked concerns of a potential sell-off if and when the economy sinks into recession.

“We’re due for a pullback but there’s an upside fever out there so we may not see it for a while,” said Mike Zigmont, head of trading and research at Harvest Volatility Management. “It’s going to take some really spectacular news or data to keep this upside momentum going. I personally don’t think earnings season can do it.”

European stocks wavered, with the region-wide Stoxx 600 ending 0.1 per cent lower, ending a run of five consecutive positive sessions, its best streak since mid-April. France’s Cac 40 added 0.1 per cent, Germany’s Dax fell 0.2 per cent and London’s FTSE 100 lost 0.1 per cent.

Asian markets were mixed. South Korea’s Kospi advanced 1.4 per cent, Hong Kong’s Hang Seng index rose 0.3 per cent and China’s CSI 300 was flat. Japan’s Topix fell 0.2 per cent.