By Joseph Adinolfi, MarketWatch , Hiroyuki Kachi
But its weekly performance wasn't quite as impressive
The U.S. dollar finished Friday's session with monthly gains
against most of its rivals.
The dollar's strong performance in July followed a weak showing
in June, when the dollar finished the month lower against other
major currencies. It finished the month up 1.4% against the euro,
its best monthly performance since May.
But its weekly performance wasn't as impressive. Data released
this week showed the U.S. economy grew at a slower-than-expected
rate in the second quarter,
(http://www.marketwatch.com/story/dollar-rises-against-yen-euro-after-fomc-2015-07-30-11033421)
and that wage inflation during the same period was weaker than
previous data had implied.
The euro soared above $1.11 early Friday after the release of
the U.S. employment-cost index, which showed that costs for
employers grew at a much weaker than expected pace in the second
quarter. But it erased nearly all of its daily gains by 3 p.m.
Eastern.
The shared currency traded at $1.0984, compared with
$1.0938.
After recording a 0.7% increase in the first quarter, the index
increased by only 0.2% in the second,
(http://www.marketwatch.com/story/us-employment-cost-index-decelerates-sharply-in-second-quarter-2015-07-31)
its weakest gain since 1982. Economists surveyed by MarketWatch
were expecting a 0.6% gain.
The index doesn't normally elicit such an intense market
reaction, said Steven Barrow, head of G-10 strategy at Standard
Bank. But the weak report, considered alongside Thursday's
less-than-spectacular gross-domestic-product data,
(http://www.marketwatch.com/story/dollar-rises-against-yen-euro-after-fomc-2015-07-30-11033421)
has shifted investors' expectations on the timing of the Fed's
impending interest rate hike -- what would be the first hike since
2006 -- back to the central bank's December policy meeting.
The Labor Department's nonfarm payrolls reports from recent
months had suggested that wage inflation was relatively consistent,
Barrow said.
"A few things have added up this week to reduce our confidence
about the Fed," Barrow said. "In terms of the September liftoff, I
think the Fed statement didn't actually help that."
Meanwhile, the dollar weakened to at Yen123.95 Friday, from
Yen124.13 late Thursday in New York. The pound edged higher Friday,
trading at $1.5614, compared with $1.5598 late Thursday.
The ICE U.S. Dollar Index , a measure of the buck's strength
against a basket of six rival currencies, finished the month 1.8%
higher at 97.2290. But it was little-changed on a weekly basis.
The buck initially strengthened after Fed policy makers released
an updated monetary policy statement Wednesday. It continued to
trade higher after the first reading on U.S. second quarter GDP was
released Thursday.
In the statement, policy makers modified their view on the U.S.
labor market, inserting the word "some" into a line saying they
need to see "further improvement" in the labor market.
This suggested that policy makers only needed to see minimal
improvement in the job market to justify a rate hike.
But according to the ECI report released Friday, "we haven't
seen an improvement. We went backwards," Barrow said.
Subscribe to WSJ: http://online.wsj.com?mod=djnwires