Upbeat data lift dollar; pound slips after Brexit delay

NEW YORK (Reuters) - The dollar strengthened against a basket of currencies on Thursday on encouraging U.S. inflation and labor data, while sterling weakened after the European Union allowed Britain to postpone its exit from the bloc for a second time.

FILE PHOTO: British Pound Sterling and U.S. Dollar notes are seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration

The euro remained under pressure a day after European Central Bank President Mario Draghi made glum comments on the euro-zone economy.

Graphic: World FX rates in 2019

First-time filings for U.S. jobless benefits dropped to a 49-1/2-year low last week, pointing to sustained labor market strength that could counter fears of a sharp slowdown in U.S. economic growth. Overall producer prices grew 0.6% in March, the most in five months, while the underlying wholesale inflation rose by a milder 0.3%.

The dollar was trading higher “off the back of a very low jobless claims number and fairly robust PPI numbers. Overall, what you’re seeing is a shift into dollars on fading expectations for a rate cut later this year,” said Karl Schamotta, director of foreign exchange strategy and structured products at Cambridge Global Payments.

A few Federal Reserve policymakers, in separate comments on Thursday, indicated that current interest rates were appropriate. A couple expressed concerns about the recent inversion of the U.S. yield curve as an omen for a slowdown.

“We are going to need deviations to the downside on inflation or the real economy or both” to justify a rate cut, St. Louis Fed President James Bullard told reporters.

In late U.S. trading, an index that tracks the dollar versus a basket of currencies was up 0.21% at 97.153. The dollar index has held in a tight 0.5-point range this week.

The euro fell in the aftermath of Draghi’s comments on Wednesday, which underscored the risks facing the euro zone economy and supported the view of possibly more ECB stimulus to prevent the region from slipping into recession.

The single currency was 0.13% lower at $1.12595 but was up 0.46% at 125.7yen.

Sterling was 0.24% weaker at $1.3057 and 0.15% lower at 86.23 pence.

EU leaders late Wednesday extended the deadline for Britain to leave the economic bloc, quelling concerns of an immediate, chaotic departure. The move was offset by the prospects of UK Prime Minister Theresa May’s replacement, a general election and the threat to the UK economy of prolonged uncertainty.

“Concern around Brexit and the ECB’s increasingly dovish stance is weighing on euro and sterling,” said Schamotta.

Reporting by Kate Duguid and Richard Leong; Additional reporting by Tom Finn; Editing by Steve Orlofsky and Leslie Adler