Soft US consumer prices calm inflation fears

London

THE US dollar index fell to its lowest in a week on Thursday and there was a mild "risk on" tone in currency markets, after US consumer price index (CPI) data calmed inflation fears, while attention turned to the European Central Bank's (ECB) policy meeting.

Softer consumer prices data in the United States on Wednesday helped to ease concerns about a possible spike in inflation when economies re-open from the Covid-19 pandemic.

That helped lift world shares to their highest in over a week, with the Dow Jones Industrial Average marking a record close, while US Treasury yields eased from their recent spike.

"The market had probably got itself a little bit too over-sensitive about rising runaway inflation - which there isn't yet," said Kit Juckes, head of FX strategy at Societe Generale. The soft inflation data "gives us respite from risk aversion and reverses some of the recent currency moves", he said.

At the ECB meeting, policymakers are expected to send a message that they will prevent bond yields from rising further and harming the bloc's economic outlook - although Mr Juckes said since the rise in yields is led by Treasuries, it is unlikely to be influenced by the ECB.

The bank is expected to signal faster money printing but stop short of adding to its already aggressive policy package.

The ECB's policy decision will be at 1245 GMT, followed by a news conference at 1330 GMT.

Analysts at ING wrote in a note to clients that they do not expect the euro to be the focus of discussion, as it has fallen since the previous meeting. The euro-dollar pair is being more driven by dollar-related factors such as Treasury yields, ING said.

At 1215 GMT, the dollar was down around 0.3 per cent at 91.581 against a basket of currencies, its third consecutive day of losses after retreating from a three month high of 92.506 on March 9.

The euro was around 0.3 per cent higher against the dollar, at US$1.19605. It has fallen 2.1 per cent so far this year.

Elsewhere, the Australian and New Zealand dollars were up for the third session in a row, both at their highest in a week versus the US dollar, helped by rising commodity prices.

The Norwegian crown touched its strongest in just over one year against the euro, before easing to 10.082.

The Japanese yen was down around 0.2 per cent versus the dollar at 108.55. REUTERS