The dollar took a breather after surging to a one-month high against a basket of currencies the previous day as US economic data and comments from Federal Reserve officials prompted investors to raise their bets on a rate increase. The dollar index eased 0.2 percent to 95.130, inching away from a one-month high of 95.357 set on Thursday. The dollar index had rallied 1.1 percent on Thursday, bringing it close to the more than 11-year high of 95.481 hit on January 23.
The euro edged up 0.1 percent to $1.1213, but remained not far from a one-month low of $1.1184 touched on Thursday. The euro was down 0.6 percent for the month after tumbling 6.7 percent in January, when the European Central Bank unveiled its government bond buying scheme, also known as quantitative easing (QE). "ECB QE is going to cap any euro rebound. But I think the catalyst for next leg lower in the euro will come from the dollar side of the story," said Sim Moh Siong, FX strategist for Bank of Singapore.
Data released on Thursday showed that the US core consumer price index, which excludes food and energy costs, rose 0.2 percent in January, more than the 0.1 percent increase economists had expected, even as overall CPI fell 0.7 percent because of falling oil prices. US durable goods orders also rose 2.8 percent in January, though the upbeat readings were tempered by a bigger-than-expected rise in new applications for unemployment benefits.
"After the data, people are more comfortable about expecting a US interest rate hike, and taking on long dollar positions," said Kaneo Ogino, director at Global-info Co in Tokyo, a foreign exchange research firm. "The dollar's downside should be limited, as I think many people will use falls as a chance to buy on dips," he said. The dollar eased 0.2 percent against the yen to 119.15 yen, but remained above Thursday's intraday low of 118.68 yen.
San Francisco Fed President John Williams and St. Louis Fed chief James Bullard both suggested on Thursday that the US central bank might end its near zero interest rate policy sooner than some traders expect. Their comments came after Fed Chair Janet Yellen's congressional testimony earlier in the week was interpreted by investors as indicating the Fed was giving itself more flexibility to raise interest rates later than June.
Divergent monetary policy expectations have bolstered the greenback against the yen, with Bank of Japan widely expected to keep its ultra-easy policy until it meets its goal of sustainable 2 percent inflation. Japanese data published early on Friday showed core consumer prices rose 2.2 percent in January from a year earlier, slightly less than economists' median estimate for a 2.3 percent annual gain. Other data showed a larger-than-expected jump in industrial production, but also a rise in the unemployment rate last month, showing the economic recovery continues but not without areas of concern. Later on Friday, investors will turn their focus to US economic data including a second estimate of fourth-quarter gross domestic product.
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