Dollar and sterling fall after Consumer Price Index miss

Key Points
  • Dollar index holds below 2018 peak as CPI disappoints
  • Euro benefits as dollar rally stalls
  • Bank of England leaves rates alone, cuts growth outlook
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The U.S. dollar fell on Thursday against a basket of currencies, holding below its 2018 peak, as a smaller-than-expected increase in consumer prices reduced bets that inflation is accelerating, which could push the Federal Reserve to hike interest rates faster.

The British pound 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.

Weaker price growth among major economies has reduced expectations that most central banks other than the Fed will reduce their bond purchases or raise interest rates.

The U.S. Consumer Price Index, the government's broadest inflation gauge, increased 0.2 percent in April, while the CPI rate that excludes volatile food and energy prices edged up 0.1 percent. Economists polled by Reuters had forecast the CPI likely grew by 0.3 percent last month, and the core CPI gained 0.2 percent.

"With the disappointment of the late 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 the dollar on signs of overseas growth, in particular in Europe, cooling quicker than the United States.

Stocks taking rising yields and oil in stride

In afternoon trading, the dollar index was down 0.41 percent against a basket of six major currencies at 92.65 after hitting a 4-1/2-month high of 93.42 on Wednesday.

Benchmark 10-year Treasury yield was down 2 basis points at 2.973 percent.

The British pound was down 0.14 percent at $1.3525 after falling to $1.3460, the lowest level since Jan. 11 after the latest BOE statement.