The U.S. dollar hit its lowest levels in more than seven weeks against the euro, yen and Swiss franc on Tuesday a day after dovish comments from a top Federal Reserve official, but pared losses after remarks from the head of the New York Fed raised expectations for a rate hike this year.
The dollar hit its lowest levels against those three currencies since June 24, or the day after Britain voted to exit the European Union, which caused tumult in global markets.
The euro rose more than one percent against the dollar to a session high of $1.1322, while the dollar fell more than 1.5 percent against the yen to 99.56 and more than 1 percent against the Swiss franc to 0.9589 franc.
The dollar index, which measures the greenback against a basket of six major currencies, also fell more than 1 percent to its lowest in more than seven weeks at 94.426. The dollar index was last down 0.88 percent at 94.80.
Analysts attributed the dollar's weakness to comments from San Francisco Fed President John Williams on Monday afternoon. Williams said the Fed should consider setting higher inflation targets. The Fed currently targets a 2-percent inflation goal.
Data showing U.S. consumer prices were unchanged in July, marking the weakest reading since February, also reinforced skepticism that the Fed would hike rates by December.
"The net takeaway is that the Fed may be so concerned about the long-term robustness of the economy and therefore, rate hikes are going to be slow," said Steven Englander, global head of foreign exchange strategy at Citigroup in New York.
The dollar pared losses immediately following the CPI data, however, after New York Fed President William Dudley told Fox Business Network that the U.S. central bank could possibly raise rates as soon as September.
After Dudley's comments, Federal funds futures prices suggested traders saw a 55 percent chance the Fed would raise rates at its December meeting, compared with an implied 42 percent probability on Monday, according to CME Group's FedWatch program.
"Many still believe the Fed has a chance to hike later in the year," said Richard Scalone, co-head of foreign exchange at TJM Brokerage in Chicago. "Dudley said that later in the day, and that's what gave us a little bit of a reversal."
The euro was last up 0.85 percent against the dollar at $1.1277, while the dollar was last down 0.91 percent against the yen at 100.29 yen.