* China Q3 GDP in line with market expectations
* Aussie pares some gains after setting 2-week high
* China Sept industrial production disappoints
* Dollar falters after U.S. core CPI below expectations
(Updates prices, adds comments)
By Masayuki Kitano and Hideyuki Sano
SINGAPORE/TOKYO, Oct 19 The dollar stepped back
from a seven-month high against an index of currencies on
Wednesday after U.S. consumer prices showed a moderation in
underlying inflation, prompting markets to trim bets on a
December Federal Reserve rate hike.
The U.S. dollar's index against a basket of six major
currencies stood at 97.846, off Monday's
seven-month high of 98.169.
The Australian dollar pared some of its earlier gains after
a barrage of Chinese economic data. The overall reaction across
major currencies was limited, however, as there were no huge
China's third-quarter gross domestic product matched market
forecasts, while September industrial production came in below
"There was probably some profit-taking in the wake of the
(Australian dollar's) rise seen since yesterday," said Hirofumi
Suzuki, an economist for Sumitomo Mitsui Banking Corporation in
Singapore, adding that there may have been some reaction to the
slightly disappointing data on industrial output as well.
Still, Suzuki said the Chinese data overall suggests that
Chinese authorities still have solid control over the economy
and that the risks of a sharp deterioration are limited. That
bodes well for the Aussie dollar in the near term, he said.
The Australian dollar last traded at $0.7670.
Earlier on Wednesday, the Aussie dollar rose to $0.7691 at one
point, matching its high on Oct. 4.
The Aussie had gained support following comments from
Reserve Bank of Australia Governor Philip Lowe on Tuesday that
he was comfortable with the current exchange rate.
The dollar struggled to gain traction in the wake of U.S.
inflation data on Wednesday.
The so-called core CPI, which strips out food and energy
costs, gained 0.1 percent last month after climbing 0.3 percent
in August, slowing the year-on-year increase in the core CPI to
2.2 percent following a 2.3 percent rise in August.
Fed fund futures <0#FF:> imply around a 65 percent
probability of the Federal Reserve raising interest rates by
December, down from 70 percent ahead of the U.S. CPI data.
"There was a bit of correction on the dollar's broad
strength. The dollar's decline was notably against sterling
most, as the British currency was heavily shorted," said Yukio
Ishizuki, currency strategist at Daiwa Securities.
The euro held steady at $1.0984, just above Monday's
2-1/2-month low of $1.0964.
A break of that level could open the way for a test of
$1.0912, a low marked on June 24 in the wake of the Brexit vote.
The common currency is weighed by wariness ahead of the
European Central Bank's policy meeting on Thursday.
The central bank is widely expected to keep its policy
unchanged with any decisions on the future of its asset purchase
scheme expected to be deferred until December.
But some traders are nervous ECB chief Mario Draghi could
take a dovish stance to counter recent talk that the ECB is
considering tapering its asset purchases.
The British pound slipped 0.1 percent to $1.2287.
Still, sterling held on to the bulk of the gains made on
Tuesday, when it climbed 0.95 percent for its biggest daily gain
in six weeks.
Short-covering in sterling was triggered after a UK
government lawyer said parliament would "very likely" have to
ratify any deal to take Britain out of the European Union, and
following stronger-than-expected inflation numbers.
Investors generally assume British lawmakers as a whole are
less in favour of a hard line on Brexit than Prime Minister
Theresa May and the ministers she has put in charge of
Against the yen, the dollar eased 0.1 percent to
(Reporting by Hideyuki Sano; Additional reporting by Masayuki
Kitano; Editing by Eric Meijer and Jacqueline Wong)