NEW YORK : The dollar fell on Wednesday after U.S. inflation data showed consumer price increases eased in July, taking some pressure off the Federal Reserve to begin scaling back the monthly bond purchases that are part of its toolbox to support the economic recovery.
The dollar index, which measures the greenback against a basket of other major currencies, was down 0.17per cent at 92.915 at 3:05 p.m. ET (1905 GMT). (Graphic: World FX rates https://tmsnrt.rs/2RBWI5E )
Earlier, the U.S. currency hit 93.195, its highest since April 1, and not far off of its 2021 high of 93.439, but it sold off after data showed the consumer price index rose 0.5per cent last month after climbing 0.9per cent in June. Excluding the volatile food and energy components, the CPI rose 0.3per cent after increasing 0.9per cent in June.
Economists polled by Reuters had forecast overall CPI would rise 0.5per cent and core CPI 0.4per cent.
While prices are still rising, the Fed has said it expects inflationary pressures to moderate over time as supply catches up with demand following months of COVID-19 lockdowns.
"The CPI report was enough to cause a bit of profit taking for the U.S. dollar, but at the end of the day, it's not a game changer for the Fed," said Kathy Lien, managing director at BK Asset Management. "They're still going to be announcing taper,” likely within the next six weeks.
The greenback had enjoyed a lift from last week's better-than-expected U.S. jobs data, as well as from remarks by Fed officials about tapering bond purchases and, eventually, raising rates, sooner than policymakers elsewhere.
Looking forward, the Fed will depend on data when it comes to the timing of the dialing back of its asset purchases, said Edward Moya, senior market analyst at OANDA.
"It's all going to be all about next month's employment report and if that does not impress, tapering, as far September goes, might even get pushed out towards the end of the year," he said.
In Europe, investor sentiment has declined, with a survey showing a third straight month of deterioration in Germany as rising global COVID-19 cases keep markets on edge.
"Investors have to take on board the possibility of news on Fed tapering at a time when COVID is still very apparent in various parts of the world," said Rabobank analyst Jane Foley.
"The consequence of this is likely to be a firmer dollar," she added, especially if the euro breaches its 2021 low.
The euro gained 0.16per cent against the greenback, to 1.17395, following six straight sessions of losses and having fallen as low as 1.1706 in early deals in Europe, near the year's low of US$1.1704.
Sterling gained 0.2per cent to 1.38645 against the dollar, pulling back from a two-week low.
The yen was up 0.12per cent at 110.445, after dropping for five consecutive sessions against the dollar.
South Korea reported a record number of COVID-19 cases on Wednesday, while outbreaks in China, Southeast Asia and Australia grow steadily.
The Australian dollar and the New Zealand dollar , seen as riskier currencies, rose after the U.S. CPI report, last up 0.33per cent and 0.5per cent respectively.
In cryptocurrencies, bitcoin touched US$46,787.60, its highest since May 17. Bitcoin was last up 1.5per cent at US$46,304.54, while ether, the second-biggest cryptocurrency, was up 2.7per cent at US$3,226.18.
(Reporting by John McCrank in New York; additional reporting by Ritvik Carvalho in London; Editing by Kirsten Donovan and Marguerita Choy)