Big Media has been busy cheerleading the dollar since it regained strength last week. But don’t expect it to keep on rising, says Andrew Gordon. News on inflation, housing and retail sales is all bad. Financials are still struggling. And the Fed is all hot air on an interest rate rise.

In the currency market, the dollar was off sharply against the euro. Late Monday, the euro was trading at $1.5923 vs. $1.5841 on Friday. Traders responded to more weak economic numbers.

In the currency market, the dollar edged higher against the euro. Late Friday, the euro was trading at $1.5841 vs. $1.5859 on Thursday.

State-run sovereign wealth funds are diversifying away from the U.S. dollar, as well as dollar denominated assets, at an unheralded pace, as the greenback’s protracted declined undermines the credibility of U.S. policymakers.

In the currency market, the dollar rallied against the euro. Late Wednesday, the euro was trading at $1.5823 vs. $1.5899 on Tuesday.

Traders were scrutinizing the release of the minutes from the last Fed meeting, searching for the future direction of interest rates, and apparently decided from the mixed signals that the Fed is about to turn hawkish on inflation.

As Dow Jones Marketwatch reported: “Some members said the Fed had aggressively cut rates to 2% to guard against downside risks to growth and now that these risks had ‘diminished’ that ‘some firming in policy would be appropriate very soon.’

“But other FOMC members said financial conditions were still too fragile and borrowing costs were higher for consumers than before the Fed starting cutting rates last fall.

“The minutes show a clear divide and intense debate between one camp that favored rate hikes sooner rather than later and others who believed the outlook was still uncertain at best.”

Those who think the Fed will have to raise rates got support from the day’s most important numbers. The Labor Department reported that the consumer price index rose by 1.1% in June. It was the biggest monthly increase since Hurricane Katrina nearly three years ago, and well above economists’ expectations for a 0.8% gain.

CPI was led higher by a 6.6% jump in energy prices and a 0.8% increase in food prices.

“The Fed will face an ongoing inflation threat that will eventually require a policy response that we continue to expect before year-end,” wrote Michael Englund, chief economist for Action Economics.

Source: Dollar Shows Strength, Traders Banking on Fed Reversing Rate Policy