The US Dollar Fell in Early European Trade

The US dollar fell in early European trade Friday, extending the previous session’s decline, as lower US inflation allowed the Federal Reserve to slow the pace of interest rate hikes.

The US Dollar Index (DXY) fell 0.10% to 101.965 after falling to its lowest level since June earlier in the session.

This week, the index should fall 1.6%, its worst performance since early November.

The dollar has been under pressure since late last year when the Federal Reserve slowed the pace of interest increases. Weakness worsened on Thursday after data showed US CPI inflation eased in December.

“Increases of 25 basis points will be appropriate in the future,” Philadelphia Fed president Patrick Harker said in a speech Thursday.

Dollar versus Other Currencies

The USD/JPY fell 0.6% to 128.51. The currency reached levels not seen since the end of May last year. It benefits from growing speculation that the BOJ will go into another hawkish pivot next week as inflation in Japan soars.

The BOJ surprised the market in December by widening the band around its 10-year bond yield target. It effectively tightened monetary conditions and should do a similar move next week.

GBP/USD rose 0.1% to 1.2210, aided by data released earlier Friday showing that the British economy grew modestly in November, a surprise.

Gross domestic product increased by 0.1% from October, beating expectations of a 0.3% decline. However, growth in the three months to November fell 0.3 percent from the previous three months.

The EUR/USD traded at 1.0846, near a nine-month high, as final French inflation figures showed CPI fell to 6.7% in December from 7.1% in November, in line with earlier preliminary monthly inflation figures.

The USD/CNY fell 0.4% to 6.7147, with the yuan trading near a six-month high after data showed an improvement in China’s trade balance as the country’s economy recovers following the government’s relaxation of most anti-COVID measures.