The dollar touched its lowest this week against major peers on Thursday, taking a breather from a rally that had lifted it to a one-year high powered by expectations for quicker Federal Reserve interest rate hikes.
The dollar index, which measures the currency against six rivals, was about flat at 94.016, after dropping 0.53% on Wednesday, the most since August 23.
The index reached 94.563 on Tuesday, its highest since late September 2020, after surging nearly 3% since early last month.
The dollar pulled back even after minutes of the Federal Open Market Committee’s September meeting confirmed tapering of stimulus is all but certain to start this year, and showed a growing number of policymakers worried that high inflation could persist.
A Labour Department report showed US consumer prices rose solidly in September, and they are likely to rise further amid a surge in energy prices, potentially pressuring the Fed to act sooner to normalise policy.
The US 5-year, 5-year-forward break even inflation rate, one of the more closely followed gauges of long-term inflation expectations, surged to its highest level in seven years at 2.59% overnight.
Most Fed officials, including Chair Jerome Powell, have so far contended that price pressures will be transitory.
Money markets are currently pricing about 50/50 odds of a first 25 basis point rate hike by July.
“The USD’s reaction may be an example of ‘buy the rumour, sell the fact,'” Joseph Capurso, a strategist at Commonwealth Bank of Australia, wrote in a client note.
“We consider the FOMC’s assumption of a transitory spike in inflation is wrong. A more aggressive tightening cycle will support the USD in our view.”
The dollar edged 0.11% higher to 113.37 yen, but back from the three-year peak of 113.80 yen hit overnight.
The euro was mostly flat from Wednesday at $1.1599, but earlier touched $1.1601 for the first time since October 5.
Sterling was little changed at $1.3665, holding Wednesday’s 0.55% advance and near its highest level this month.
Bitcoin edged higher to touch a five-month peak at $58,300.