Reply #21: Dollar Falls as CPI Trims Expectations for Fed Rate Increases [View All]

http://quote.bloomberg.com/apps/news?pid=10000101&sid=aYTn58CsKrGo&refer=japan

June 15 (Bloomberg) -- The dollar declined against the euro, yen and 12 other major currencies after U.S. consumer prices rose less than some traders had predicted, trimming expectations for Federal Reserve interest-rate increases.

Demand for the U.S. currency waned after the Labor Department said prices paid by U.S. consumers climbed 0.2 percent excluding food and energy. Some traders had bet the figure would be higher, said currency strategists including David Durrant at Bank Julius Baer & Co. in New York.

``The market was expecting an acceleration in inflation, and the CPI report showed that's not the case yet,'' said Durrant, whose bank manages $76 billion. Chances of a half-point rate increase at this month's Fed meeting are now ``much lower, and that's why we are seeing the dollar weakening.''

Against the yen, the dollar fell to 110.46 at 9:11 a.m. in New York from 111.03 late yesterday, according to EBS, an electronic foreign-exchange dealing system. Versus the euro, the dollar dropped to $1.2100 from $1.2059.

Interest-rate futures declined after the report, suggesting traders pared their bets for how fast and how far policy makers will raise borrowing costs. The July fed funds futures contract yield dropped to 1.28 percent, from 1.33 percent before the CPI report. The yield shows traders see a 100 percent chance of a 25 basis-point increase this month.

``People were looking at this number, thinking it could be the catalyst for something more than 25 basis points,'' said Ian Gunner, head of foreign-exchange research in London at Mellon Financial Corp. ``A higher number than this would have given the dollar a lift, and now there is some unwinding of those bets.''

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