February 2, 2023

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Dollar wobbles as US inflation stokes hopes of slower Fed rate path By Reuters

©Reuters. FILE PHOTO: US dollar banknotes are seen in this illustration dated July 17, 2022. REUTERS/Dado Ruvic/Illustration

By Ankur Banerjee

SINGAPORE (Reuters) – The U.S. dollar teetered on Friday, flirting with seven-month lows after a sharp overnight plunge, as data showed U.S. inflation was slowing, bolstering hopes that the Federal Reserve is tailing off an aggressive rate hike policy.

The , which measures the US currency against six others, rose 0.059% to 102.220 but remained at its lowest level since June.

The euro rose 0.03% to $1.0849 after hitting a fresh nine-month high earlier in the session. Sterling was last traded at $1.221, up 0.08% on the day.

US consumer prices fell surprisingly in December for the first time in more than 2 1/2 years, with Federal Reserve policymakers voicing relief and paving the way for the central bank to slow the pace of monetary tightening.

Futures traders tied to the Fed’s benchmark interest rate are heavily betting on a downgrade to a quarter-point rise from the Jan. 31-February 1 meeting and a pause just below 5%, with rate cuts priced in later in the year will be year.

The US Federal Reserve raised interest rates by 50 basis points in December but said it needs to keep them higher longer to tame inflation.

“25 basis point hikes will be appropriate going forward,” Philadelphia Fed President Patrick Harker said in a speech to a local group in Malvern, Pennsylvania.

Carol Kong, a currency strategist at the Commonwealth Bank of Australia (OTC:), said the Fed is likely to take solace on the inflation report and the US dollar will continue to weaken.

“Although we are likely to see the dollar peak, there is still some scope for the dollar to strengthen temporarily,” Kong said, citing the expected global economic slowdown.

Meanwhile, the yen rose 0.12% to 129.10 per dollar after hitting a fresh seven-month high of 128.65 per dollar earlier in the session.

The yen was boosted by rising speculation that the Bank of Japan (BOJ) will review the side effects of its monetary easing at next week’s monetary policy meeting.

The Australian dollar fell 0.11% to $0.696, while the Australian dollar fell 0.34% to $0.637.