Dollar Falls over Inflation Figures 

The dollar weakened in early European forex trading on Thursday. This was amid fading hopes for additional economic stimulus while inflation figures were on the rise.

At 3 AM ET (0700 GMT), the Dollar Index was down 0.3% at 93.157. USD/JPY fell 0.2% at 106.72 and GBP/USD rose 0.3% to 1.3066. Moreover, EUR/USD was up 0.4% at 1.1826 in the FX market.

Weighing on the dollar has been the inability of the U.S. lawmakers to come to any sort of consensus. This was regarding the country’s latest Covid-19 stimulus package.

It’s a deal that many feel is necessary to keep the economic recovery on track.

U.S. President Donald Trump accused Democrats on Wednesday of not wanting to negotiate over the package. Republican and Democratic negotiators were trading barbs and blame as negotiations ended without a result for the fifth day.

Richmond Fed President Thomas Barkin stated on Tuesday that the economy could take another downturn. That is if U.S. policymakers fail to provide more financial aid.

Federal Reserve Bank of Boston President Eric Rosengren said he strongly supported taking additional fiscal action. This was to help businesses and households survive the crisis.

But, he added that more spending should be combined with more robust efforts to contain the virus.

U.S. deaths caused by Covid-19 topped 166,000 as of Aug. 13. Confirmed cases rose by more than 4% in the past week, according to data collected by Johns Hopkins University.

The Dollar: Inflation Figures

Adding to the problems facing the dollar were the latest inflation figures. It had strong numbers from both the consumer and producer sides.

In a note, Jefferies (NYSE:JEF) said the 0.6% month-on-month increase in July core CPI was jaw dropping. It has been the largest sequential jump since January 1991.

Jefferies added, while this momentum in pricing is unlikely to be sustained, the strength was broad-based and cannot be ignored.

The Federal Reserve already committed to keeping its benchmark rates at these very lows for some time. But the pressure is building on U.S. real yields.

Chris Turner at ING said much discussed in financial markets this summer is the drop in U.S. real yields. The Fed keeps rates low, while U.S. inflation expectations are on the rise.

Elsewhere, the Pound to Australian Dollar (GBP/AUD) exchange rate increased by 0.2% today in forex.  The pairing is currently trading around AU$1.825.