The US dollar retreated on Thursday from an 18-month high despite data showing US inflation rose more than expected, as market bets on an interest rate hike this month weakened following cautious comments from Federal Reserve officials and a decline in Treasury yields.
The dollar index, which tracks the US currency against a basket of major currencies, fell 0.1% to 102.06 after giving up most of its gains following the release of the inflation data.
The euro rose 0.3% to $1.1187, recovering from an 18-month low, while the British pound gained 0.2% to $1.3224 after touching a 13-month low.
US Labor Department data showed that core consumer prices, which exclude food and energy, rose 0.3% in September, compared with expectations for a 0.2% increase. On an annual basis, core inflation rose 2.6%, above expectations of 2.5%, while headline inflation increased 3.7%, compared with forecasts of 3.6%.
The data pushed expectations for a US interest rate hike in October to around 50%, but those bets later eased after Federal Reserve officials signaled a preference for waiting before making a decision, with the central bank’s meeting scheduled for October 27-28 approaching.
Khoon Goh, head of Asian research at ANZ, said that although inflation data came in slightly above expectations, it may not be strong enough to prompt the Federal Reserve to raise interest rates in October.
He added that the approaching US midterm elections could make markets more cautious in their expectations for the interest rate decision.
Falling US Treasury yields also put pressure on the dollar. The yield on the 10-year Treasury note fell to a three-week low of 5.1267%, while the yield on the 30-year bond stood at 5.4795%.
Markets are awaiting US producer price and retail sales data later on Thursday for further signals on inflation, the economy and the path of monetary policy.
In other currency markets, the Australian dollar fell 0.3% to $0.6952 after domestic employment unexpectedly declined in September. The New Zealand dollar rose 0.2% to $0.5604, while the Japanese yen strengthened by around 0.3% to 157.82 per dollar.
The offshore Chinese yuan also edged higher to 6.6916 per dollar after data showed Chinese producer prices rose last month amid higher costs for basic commodities.
Source: Reuters
