The dollar slipped from a seven-week high on Monday, as investors took stock of last week’s strong U.S. economic data and the outlook for global interest rates.
The dollar index was last down 0.1% at 105.05, after earlier climbing to a seven-week high of 105.36.
Data on Friday showed U.S. consumer spending rebounded sharply in January, while inflation accelerated.
Traders now expect the Fed to raise interest rates to around 5.4% by the summer, according to pricing in futures markers. At the beginning of February, they envisaged rates rising to a peak of just 4.9%.
The U.S. dollar index, which measures the greenback against six major peers, has risen almost 3% in February and is on track to snap a four-month losing streak.
The euro fell to its lowest against the dollar since Jan. 6 on Monday as the U.S. currency gained, slipping to $1.053.
It then rebounded somewhat, however, and was last up 0.16% to $1.056.
Simon Harvey, head of FX strategy at Monex Europe, said a slight improvement in investor sentiment on Monday, with global stocks rising, may be weighing on the dollar.
“There may also be a factor of month-end flows out of the dollar after a strong February for the greenback,” he said, although he highlighted that the moves were limited.
The dollar was last down 0.22% against the Japanese yen at 136.21 yen, reversing some of its gains after rising to a more than two-month high of 136.58 earlier in the session.
Incoming Bank of Japan Governor Kazuo Ueda said on Monday the merits of the bank’s current monetary policy outweigh the costs, stressing the need to maintain support for the Japanese economy with ultra-low interest rates.
The pound was up 0.31% at $1.198, after falling for three straight sessions. Analysts said a potential deal resolving post-Brexit tensions with the European Union was supporting the pound.
Ulrich Leuchtmann, head of FX research at Commerzbank (ETR:CBKG), said core inflation was a key concern for central bankers.
“Whereas headline rates are falling, the trend of rising core inflation rates has been unbroken,” he said.
“Only once we notice a reversal in this data, the fear of inflation currently affecting the market is going to ease.”
Friday’s data showed that the core measure of U.S. personal consumption expenditures inflation, which strips out volatile food and energy costs, came in at 4.7% year-on-year in January, up from 4.6% in December.
Core consumer price inflation in the euro zone rose to a record high of 5.3% year-on-year in January.
Investors will get more information on the state of the global economy this week, with U.S. ISM manufacturing and services survey data for February due on Wednesday and Friday respectively; and preliminary euro zone CPI inflation figures for February due on Thursday.
The Aussie was 0.15% lower at $0.672, after falling below $0.67 to its lowest since the start of January earlier in the session.
The dollar was down 0.17% against the offshore Chinese yuan, to 6.97 per dollar. It earlier tested the 7 barrier, rising to 6.99, its highest since late December.