Investing.com – The dollar traded lower against a basket of major currencies as market participants questioned whether the faster pace of inflation would continue while an “ugly” retail sales report added to downside momentum.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, fell 0.61% to 89.05.
The Labor Department said Wednesday its Consumer Price index rose 0.5% last month after rising 0.2% in December, while year-on-year CPI grew to 1.8% from 1.8% in December.
The Commerce Department, meanwhile, said on Thursday that retail sales fell 0.3% last month, confounding expectations for a 0.2% rise.
After an initial surge higher the dollar retreated sharply as market participants highlighted that a large increase in apparel and medical services prices accounted for the jump in consumer prices and questioned whether these two components would continue to post strong gains in the months ahead.
Pantheon said apparel prices have long been under pressure so the rebound seen in January’s inflation report was somewhat expected, while the rise in medical services prices were driven by a jump in the hospital component, which is expected to correct in February’s inflation report.
That said, however, Pantheon remained confident that the underlying trend of inflation remained strong enough to allow the Federal Reserve to continue on its tightening path. Pantheon said it expects the Federal Reserve to hike rates four times in 2018.
JPMorgan slashed its first quarter US GDP forecast to 2.5% from 3%, citing “scorching” CPI data and “ugly” retail sales data as headwinds.
Also weighing on the greenback was ongoing yen strength as USD/JPY fell 0.91% to Y106.84 amid ongoing expectations that the Bank of Japan (BoJ) was poised to start reining in loose monetary policy measures.
GBP/USD gained 0.76% to $1.3994 while EUR/USD rose 0.65% to $1.2431.
USD/CAD fell 0.51% as the pair came under pressure following a rebound in oil prices amid a smaller than expected increase in US crude stockpiles.