The dollar fell further against other major currencies on Thursday, as traders reduced their bets on the Federal Reserve raising interest rates aggressively following softer-than-expected US inflation statistics the day before.

The dollar index fell 0.2% to 105.000 in European trading hours, following a 1% drop the previous day, its worst daily drop in five months.

Consumer prices in the United States remained steady month on month in July, after rising 1.3% in June, according to data released on Wednesday. 

“Yesterday’s data gave hope that inflation has peaked and the Fed will need to raise rates less sharply to keep inflation under control,” Commerzbank currency analysts wrote in a note.

Traders have reduced their bets on the Fed raising rates by 75 basis points for the third time in a row at its September policy meeting, with a half-point hike now seen as more plausible. 

Fed members sought to dampen expectations of much looser policy, with Neal Kashkari telling a conference on Wednesday that the Fed was “far, far away from declaring victory” on inflation. 

“While yesterday’s data clearly reduces the risk of further aggressive Fed action (+75bps) and therefore helps curtail U.S. dollar demand, we equally see it as unlikely that this data alone will prompt much further U.S. dollar selling from here,” currency strategists at MUFG wrote in a note.

The euro and Japanese yen were among the currencies that benefited from the dollar’s weakness, and both added to their gains from the previous day.

Source: Reuters

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