May 10, 2018 / 12:51 AM / 11 days ago

CPI miss keeps dollar below 2018 peak, sterling falls

NEW YORK (Reuters) - The U.S. dollar fell on Thursday against a basket of currencies, holding below its 2018 peak, as a smaller-than-expected rise in consumer prices caused traders to pare positions betting that inflation is accelerating, which could push the Federal Reserve to hike interest rates faster.

An employee of a bank counts US dollar notes at a branch in Hanoi, Vietnam May 16, 2016. REUTERS/Kham

The British pound GBP=D3 hit a four-month low versus the greenback after the Bank of England left key borrowing costs unchanged but reduced its growth and inflation outlook for 2018 and 2019.

The recent softening in price growth among major economies has lowered expectations that most central banks other than the Fed will reduce their bond purchases or raise interest rates.

“Most central banks with the exception of the Fed had been more hawkish than they needed to be. They now seem to be walking back,” said Michael Diaz, head of FX at XE in Buena Park, California.

The U.S. Consumer Price Index, the government’s broadest inflation gauge, increased 0.2 percent in April, less than the 0.3 percent rise projected by economists polled by Reuters.

“With the disappointment of the latest CPI, it does knock the wind out of the dollar for a bit,” said Mazen Issa, senior FX strategist at TD Securities in London.

Lower U.S. Treasury yields added pressure on the greenback which had rallied for over two weeks on traders exiting their bearish bets on signs of overseas growth, in particular in Europe, cooling more quickly than the United States.

The dollar index .DXY fell 0.4 percent against a basket of six major currencies at 92.680 after hitting a 4-1/2-month high of 93.42 on Wednesday.

Benchmark 10-year Treasury yield US10YT=RR was down over 2 basis points at 2.971 percent following the mildly disappointing U.S. CPI data and solid demand at $17 billion auction of 30-year government bonds.

The euro benefited the most on the dollar's pullback, posting a 0.6 percent gain at $1.1920 EUR=, while the dollar slipped 0.3 percent to 109.37 yen JPY=.

The British pound was down 0.2 percent at $1.3516 GBP=D3 after falling to $1.3460, the lowest level since Jan. 11 after the latest BOE statement.

Among Asian currencies, the Malaysian ringgit lost 4 percent in offshore trading MYR1MNDFOR= MYR3MNFOR= MYR= following the stunning victory of the opposition Pakatan Harapan (PH) coalition.

Malaysian financial markets were shut on Thursday and Friday.

PH’s pledge to repeal an unpopular goods and services tax, restore a petrol subsidy and increase minimum wages raised concerns how the incoming government would pay for these programs and its potential drag on the ringgit.

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Currency bid prices at 3:01PM (1901 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar EUR= $1.1925 $1.1850 +0.63% -0.59% +1.1946 +1.1844

Dollar/Yen JPY= 109.3600 109.7400 -0.35% -2.94% +110.0100 +109.3200

Euro/Yen EURJPY= 130.43 130.04 +0.30% -3.51% +130.7500 +130.0000

Dollar/Swiss CHF= 1.0022 1.0050 -0.28% +2.86% +1.0057 +0.9995

Sterling/Dollar GBP= 1.3517 1.3544 -0.20% +0.04% +1.3617 +1.3461

Dollar/Canadian CAD= 1.2755 1.2853 -0.76% +1.42% +1.2859 +1.2743

Australian/Doll AUD= 0.7537 0.7462 +1.01% -3.38% +0.7539 +0.7451

ar

Euro/Swiss EURCHF= 1.1954 1.1914 +0.34% +2.27% +1.1957 +1.1900

Euro/Sterling EURGBP= 0.8820 0.8748 +0.82% -0.71% +0.8837 +0.8729

NZ Dollar/Dolar NZD= 0.6964 0.6984 -0.29% -1.72% +0.6985 +0.6904

Dollar/Norway NOK= 7.9952 8.0742 -0.98% -2.58% +8.0825 +7.9818

Euro/Norway EURNOK= 9.5373 9.5726 -0.37% -3.16% +9.5775 +9.5223

Dollar/Sweden SEK= 8.6412 8.7027 -0.09% +5.36% +8.7118 +8.6136

Euro/Sweden EURSEK= 10.3080 10.3170 -0.09% +4.77% +10.3275 +10.2710

Additional reporting by Tom Finn in London; Vidya Ranganthan in Singapore; editing by Jonathan Oatis and Cynthia Osterman

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