The US dollar weakened against a basket of currencies on Friday, after data showed US consumer prices rose less than expected in July, pointing to benign inflation that could make the Federal Reserve cautious about raising interest rates again this year. The dollar index, which tracks the greenback against six major currencies, was down 0.13 percent to 93.28, after earlier falling to a one-week low of 92.992.
The US consumer price index edged up 0.1 percent last month after being unchanged in June. Economists polled by Reuters had expected the CPI to rise 0.2 percent in July. "If the data continues to come in on the softer side, the market might start to price the Fed staying on hold this year," said Sireen Harajli, FX strategist at Mizuho in New York.
Federal funds futures suggested traders saw a 40 percent chance that the Fed would increase short-term rates at its December 12-13 policy meeting, compared with 42 percent shortly before the release of the July consumer price data. Harajli, who still expects the Fed to raise rates one more time this year, said Friday's numbers were unlikely to sway the central bank from announcing the beginning of the reduction in size of its balance sheet later this year.
The dollar fell to a sixteen-week low against the Japanese yen, but pared losses after Russian Foreign Minster Sergei Lavrov said there was a Russian-Chinese plan to defuse tensions between the United States and North Korea. "The last thing the markets want here is the tension between US and North Korea. It's a situation with no good resolution even though most people are skeptical that Russia and China have a plan to defuse the situation," said Stan Shipley, strategist at Evercore ISI in New York.
The dollar was little changed against the Swiss Franc after erasing losses from earlier in the session. The franc and the yen are often sought in times of geopolitical tension and have logged big gains against the dollar this week amid escalating tensions between North Korea and the United States. The euro was up 0.15 percent to $1.1788 after Morgan Stanley raised its currency forecasts for the currency, predicting it would hit $1.25 early next year.
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