The euro and the Japanese yen held firm on Thursday morning after less-than-feared U.S. inflation data overnight sent the dollar lower.
US consumer prices in July were unchanged from June, when prices rose 1.3% over the month.
July’s result came in below expectations due to a sharp drop in petrol prices, sending markets reeling on hopes that inflation had peaked.
If price increases reach their zenith, investors expect that the US Federal Reserve will not have to maintain the staggeringly high rate of interest rate hikes that have supported the dollar.
The euro traded at $1.0297 on Thursday morning after jumping 0.84% ​​the day before, its biggest daily percentage gain since mid-June.
The yen was at 132.83 per dollar after the greenback fell 1.6% overnight against the Japanese currency, which is particularly sensitive to changes in U.S. yields.
U.S. stocks and short-dated Treasuries also gained on the news, pushing the Nasdaq more than 20% above June lows, while the two-year Treasury yield fell to 3.2141%, seven basis points below its previous close.
US Treasuries were not traded in early Asia due to a holiday in Japan.
Analysts at Standard Chartered said the drop in the dollar appeared to be due to improved investor attitudes towards riskier assets, apart from the move against the yen, which they said was more of a yield play.
“The unexpected move down (in inflation) removes much of the fear the market had before a 75 basis point Fed hike or even a move between meetings,” they wrote in a note.
“We suspect that many investors did not want to take positions ahead of an important number that could have gone either way, so some of the post-CPI movement likely reflects delayed buying of risk-related positions.”
Markets are currently pricing in a 57.5% chance of a 50-basis-point interest rate hike at the Fed’s next meeting, according to CME’s Fedwatch tool, although a 75-basis-point hike is still possible.
Fed policymakers also warned in public remarks after the data that they would continue to tighten monetary policy until price pressures were fully contained.
The Australian dollar, another frequently used risk indicator, was at $0.7077 after gaining 1.7% overnight, while the pound sterling was on top at $1.2207.
Bitcoin, which also traded in line with risk assets, tested its recent highs of $24,000.
