Dollar Dives as Trump Sparks Negative Interest Rate Fears

Dollar Dives as Trump Sparks Negative Interest Rate Fears  | May 12, 2020 14:20

Dollar Dives as Trump Sparks Negative Interest Rate Fears

By Yasin Ebrahim – The dollar cut gains to trade sharply lower on Tuesday as President Donald Trump stoked fresh worries about negative interest rates after calling on the central bank to do more easing.

The U.S. dollar index, which measures the greenback against a trade-weighted basket of six major currencies, fell by 0.32% to 99.95.

Trump said the Federal Reserve should follow its counterparts and cut rates into negative territory to give the U.S. economy a much-needed boost as signs of economic damage continue to mount.

The Labor Department said on Tuesday its consumer price index fell 0.8% last month, with the year-on-year pace slowing to 0.3% from 1.5%.

Core inflation, which excludes food and energy, recorded consecutive month-on-month declines for only the second time in the series' 63-year history. The last time was 1982, IGN said.

Despite a string of data showing the U.S. economy is set for a long road to recovery, several Fed members are railing against the idea of negative interest rates.

St. Louis Fed President James Bullard said that negative interest rates are not a clear remedy for the coronavirus hit to the U.S. economy. Chicago Fed President Charles Evans said he does not see negative rates as "a tool that we would be using in the U.S."

Federal Reserve Chairman Jerome Powell is also expected to hit back against the idea of negative rates when he delivers an economic update on Wednesday at 9:00 AM ET (13:00 GMT).

Elsewhere, GBP/USD fell 0.45% to $1.2280, with cable likely set for further losses amid fresh Brexit worries as the U.K. shows little sign that it wants to extend the transition period, risking the possibility of a no-deal Brexit should trade talks with the EU fall through.

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