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The dollar hovered below a 4-1/2-month high against a basket of major currencies on Friday after tepid inflation data, prompting traders to pare bets of faster U.S. rate hikes.
U.S. consumer prices rose less than expected in April, which would support gradual, rather than more aggressive, rate increases by the Federal Reserve.
“Given recent rises in oil prices, a weaker dollar earlier this year, and U.S. tax cuts, markets were clearly worried more about upside risks in inflation,” said Minori Uchida, chief currency strategist at MUFG Bank.
The so-called core CPI, which strips out the volatile food and energy components, rose 0.1 percent from previous month, compared to economists’ median forecast of 0.2 percent rise.
It lodged year-on-year rise of 2.1 percent, matching March’s increase.
The dollar’s index against a basket of six major currencies stepped back to 92.71 from Wednesday’s 4-1/2-month high of 93.42.
The euro jumped back to $1.1918 from Wednesday’s 4- 1/2-month low of $1.1823
The single currency has so far weathered the impact from rises in Italian bond yields on signs the country’s two anti-establishment parties could sweep into power as they made “significant steps” towards forming a government.
While that would end almost ten weeks of political stalemate after an inconclusive election on March 4, investors cast a wary eye on a coalition of the 5-Star Movement and far-right League, which are hostile to European Union budget restrictions.
Against the yen, the common currency rose to 130.38 yen, extending its recovery from its six-week low of 129.24 yen set on Tuesday.
The dollar eased to 109.40 yen from Thursday’s high of 110.02 yen and off its three-month top of 110.05 yen touched on May 2.