NEW YORK- The dollar fell to a more than one-week low as investors consolidated gains after a sharp rise against most currencies, ahead of a US inflation report that could determine the size of the Federal Reserve’s rate hike at this month’s policy meeting.
On the week, the dollar index, which tracks the greenback’s value against six major peers, posted its first weekly fall in four on Friday.
“Markets are getting a little nervous about levels, really historic levels, so the market decided not to push the dollar’s strength at this juncture and lightened up positions,” said Greg Anderson, global head of FX strategy, at BMO Capital Markets in New York.
“Probably position-taking will be light until the FOMC (Federal Open Market Committee) meeting. The market looked at everything overnight and decided that this is a good juncture to square up and that process has brought the dollar lower. But this is not a reversal of the trend on dollar strength,” he added.
The greenback this week soared to a 24-year high against the yen, a 37-year peak versus sterling, wit the dollar index surging to a more than 20-year high.
On Friday, the dollar index dropped as low as 108.35 and was last down 0.5 percent at 108.96.
US rate futures are pricing in an 87 percent chance of the Fed hiking by 75 bps hike this month, with fresh US consumer price data next week likely to be closely watched.
Capital Economics expects the CPI to continue to edge lower.
“We think falling inflation in the US is consistent with our view that the backdrop remains favorable for the dollar, as it stands to benefit from higher real rates while the global economy slows,” wrote Jonathan Petersen, Capital Economics senior markets economist wrote in its latest research note.
