The index gave up early gains and slipped back into negative territory shortly after US inflation data posted another weak reading in April.
The dollar closed flat against a basket of six major currencies on Wednesday after reports US inflation slowed more than expected but offered little clarity on the outlook for US monetary policy.
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Against a basket of currencies, the dollar index fell 0.1% to 101.48 after hitting a low of 101.21. The euro rose 0.15% to $1.0979, while sterling was steady at $1.2624. The yen rose 0.73% to 134.50 against the dollar.
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Labor Department data showed annual inflation fell to 4.9% in April, and was below 5% for the first time in two years. However, so-called core inflation remains at 5.5%, suggesting that rates will need to remain high for some time to contain it.
“The market’s view is that the Fed will cut rates sooner and faster than most other central banks. The data is showing some tentative signs of validation of those divergent expectations, but is vague in suggesting they are necessary.” deep cut,” said Alvis Marino, macro trading strategist at Credit Suisse in New York.
He added: “When the market expects big things to happen, and the actual results are not so impressive, expectations of future volatility drop.”
Fed funds futures traders expect a pause before a rate cut in September. The Fed’s rate target range is between 5% and 5.25%.
But Amo Sahota, director at Clarity FX, believes that a cut of around 80 basis points by the end of this year to the market “seems a bit aggressive.”
Sahota said, “I think what the data says is that the Fed may pause and not raise interest rates. I don’t think this gives us the green light to do aggressive rate cuts.”
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