* Weak U.S. retail sales, inflation data pressure dollar
* Fed hikes rates, outlines plan to reduce bond holdings
* Australian dollar rises on robust employment figures
* New Zealand dollar skids after GDP growth falls short
TOKYO, June 15 The dollar nursed losses on
Thursday, after weak U.S. inflation data left investors
wondering if the Federal Reserve would be able to follow up its
latest rate hike with another later this year.
Deepening political turmoil in Washington also weighed on
the greenback and U.S. Treasury yields, with the Washington Post
reporting that U.S. President Donald Trump is being investigated
by special counsel Robert Mueller for possible obstruction of
Also on Wednesday, a prominent Republican was among those
shot by a gunman said to be angry with Trump.
The dollar index, which tracks the U.S. currency against a
basket of six rivals, was slightly lower on the day at 96.915
though above its overnight low of 96.323 plumbed after
downbeat economic figures.
The Fed raised interest rates a quarter percentage point to
a target range of 1.00 percent to 1.25 percent on Wednesday, as
expected, and gave its first clear outline on its plan to reduce
its $4.2-trillion bond portfolio.
But the moves were overshadowed by inflation and retail
sales data earlier in the day that fell short of market
expectations. The core rate of inflation increased at just 1.7
percent on year, the fourth straight monthly deceleration and
the slowest overall pace in two years.
The Fed said a recent softening in inflation was seen as
transitory, but the latest tepid price readings made investors
question its view that the U.S. economy is continuing to
Against its Japanese counterpart, the dollar shrugged off
earlier losses and was flat at 109.54 yen, above
Wednesday's eight-week low of 108.81 yen.
The euro was also unchanged at $1.1217, below a
seven-month peak of $1.1296 scaled overnight.
U.S. 10-year Treasury yields were last at 2.134
percent, below their U.S. close of 2.138 percent. They fell as
low as 2.103 percent following the downbeat data, their lowest
since Nov. 10.
The Fed also mapped out a very gradual approach to shrink
its $4.2-trillion holdings of Treasury- and mortgage-backed
assets that would allow it to begin as early as September. The
process could start "relatively soon," Fed Chair Janet Yellen
"There is a lot to digest, and even some apparently
conflicting signals, such as the fact that the Fed revised its
own inflation outlook slightly down and yet kept its intention
to raise rates again this year," said Mitsuo Imaizumi,
Tokyo-based chief foreign exchange strategist for Daiwa
The Fed said it expects U.S. inflation to be at 1.7 percent
by the end of this year, down from the 1.9 percent previously
"It remains to be seen if the Fed can really do both this
year - raise rates again, and also begin reducing its balance
sheet," Imaizumi added.
A Reuters poll of 21 of the 23 primary dealers that do
business directly with the Fed showed 14 of them now believed it
would announce the start of its balance sheet normalisation at
its Sept. 19-20 policy meeting. The rest of them said it would
make such a move at its Dec. 12-13 meeting.
They said they expected Fed policymakers to raise interest
rates one more time by the end of 2017 and then three times in
"Investors believe that it is going to take the Fed some
time to confirm that inflation is strong enough to raise rates
again, and in the meantime, the Fed is going to start reducing
its balance sheet at a gradual pace," said Kumiko Ishikawa, FX
market analyst at Sony Financial Holdings in Tokyo.
"In this climate, there are no incentives to buy the
dollar," she said.
On Friday, the Bank of Japan is widely expected to keep its
monetary policy unchanged, and reassure markets it will lag the
Fed in tapering its massive stimulus programme, as Japan's
inflation remains low despite a strengthening economy.
BOJ Governor Haruhiko Kuroda is also seen dispelling market
speculation that the central bank is engaging in "stealth
tapering" by stressing that the recent slowdown in its Japanese
government bond buying is simply the result of a stable bond
market, according to sources familiar with the BOJ's thinking.
The Australia dollar rose 0.2 percent to $0.7605,
moving back toward its 2-1/2-month high of $0.7636 hit on
Wednesday, after a better-than-forecast employment report.
But the New Zealand dollar skidded 0.8 percent to $0.7213
, moving away from the previous session's four-month
high of $0.7319.
Data showed that New Zealand's economy grew 0.5 percent in
the three months to March, lower than the 0.7 percent growth
forecast in a Reuters poll and well below the central bank's
forecast for 0.9 percent growth.
(Reporting by Tokyo markets team; Editing by Kim Coghill and