U.S. Markets

Dollar dips against major rivals on Fed rate hike doubts

NEW YORK (Reuters) - The U.S. dollar dipped against a basket of major currencies on Tuesday after U.S. inflation data failed to convince currency traders that the Federal Reserve was moving closer to another interest rate hike.

An employee of a bank counts US dollar notes at a branch in Hanoi, Vietnam May 16, 2016. REUTERS/Kham

The dollar initially rose against the euro and Swiss franc after data showed U.S. consumer prices recorded their biggest increase in more than three years in April as gasoline and rents rose, with the euro hitting a session low against the greenback of $1.1303 EUR= and the dollar hitting a nearly nine-week high against the franc of 0.9803 franc CHF=.

That move was short-lived, and the dollar erased gains to trade lower against the euro, yen, and franc. Analysts said the inflation data was mixed, partly since core CPI increased 2.1 percent in the 12 months through April after rising 2.2 percent in March.

The euro was last up 0.19 percent against the dollar at $1.1335, near a session high of $1.1347. The dollar was down 0.06 percent against the yen at 108.95 yen JPY=, easing from a more than two-week high of 109.64 yen.

“If you are a hawk, you could see the CPI as being higher, but in reality, the numbers were pretty much on consensus,” said Richard Scalone, co-head of foreign exchange at TJM Brokerage in Chicago, in reference to Fed policymakers considered “hawks” for favoring tighter monetary policy.

Fed funds futures on Tuesday suggested traders saw an 11 percent probability of a Fed rate hike next month, according to CME Group’s FedWatch program.

The dollar gave back gains against the safe-haven yen on risk aversion, analysts said. Concerns over global economic growth partly drove a dip in U.S. stocks, which helped the yen recover against the dollar, said Boris Schlossberg, managing director at BK Asset Management in New York.

The U.S. benchmark S&P 500 .SPX stock index was last down 0.39 percent.

The Australian dollar AUD=D4 was last up 0.55 percent against the greenback at $0.7328. The Aussie earlier gained as much as 1.2 percent against the greenback and hit a session high of $0.7368 after minutes from the Reserve Bank of Australia (RBA) tempered expectations of an interest rate cut.

The dollar index, which measures the greenback against a basket of six major currencies, was last down 0.14 percent at 94.441 .DXY.

Reporting by Sam Forgione; Additional reporting by Jemima Kelly in London; Editing by Meredith Mazzilli