(Updates prices, adds commentary)
The dollar index lost some ground on Friday after U.S. consumer prices increased roughly in line with expectations in November as investors, who had feared a much higher inflation reading, bet that the actual number would not change the pace of interest rate hikes.
Labor Department data showed an increasing consumer price index (CPI) as the cost of goods and services rose broadly amid supply constraints for the largest annual gain since 1982.
The CPI rose 0.8% last month after surging 0.9% in October while in the 12 months through November, it rose 6.8%, following a 6.2% advance in October. This compared with a 0.7% forecast from economists polled by Reuters.
"Coming into the report, there was some concern it might have been a little hotter," said Mazen Issa, senior FX strategist at TD Securities. "Given how the dollar traded ahead of the report, this is more of a relief rally from the other currencies."
Investors had been watching for a higher-than-consensus inflation reading and the possibility that such a reading would lead the Federal Reserve to signal a faster-than expected pace of interest rate hikes after the next Federal Open Market Committee (FOMC) meeting, which ends on Wednesday.
"Today isn't going to change the message for next week. We're going to see a hawkish Fed. We're going to see a dot plot that moves higher," said Issa.
With the dollar index up almost 7% for the year-to-date, Issa acknowledged that "a lot has already priced in," but with overseas central banks looking less hawkish than the Fed, there was no credible alternative for currency investors.
"It's going to be hard to fade the dollar in the face of what's projected to be elevated inflation at least through to early second quarter. That's the challenge," he said.
Against a basket of its rivals =USD , the dollar went into negative territory after the CPI news and fell further as the day wore on with some trading choppiness. The index was last down 0.12% at 96.09.
The dollar was down 0.02% against Japan's yen JPY=EBS The British pound inched up on Friday after the greenback lost ground after the U.S. inflation data. Sterling GBP=D3 was last trading up 0.28% at $1.3257.
The euro EUR=EBS was up 0.17% at $1.1312. While Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets said that the forex market had positioned for a higher inflation reading, he was less bullish about the dollar for the rest of the year.
"The FX market has been extremely long U.S. dollars for several months so with this number coming in benign we're almost out of events that could push the dollar materially higher before year-end," he said, noting that next week's FOMC meeting and Powell's speech following the meeting are likely the last dollar catalyst events this year.
"Normally FX investors scale back positions for year end ... Today's price action where the dollar fell on neutral news is probably a prelude to that," Anderson said.
Elsewhere, China's yuan fell in onshore CNY=CFXS and offshore markets CNH=EBS after the People's Bank of China (PBOC) raised FX reserve requirements for the second time since June, and was further pressured when the central bank set its trading band midpoint weaker than expected.
======================================================== Currency bid prices at 3:17PM (2017 GMT)Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid Previous Change Session Dollar index =USD 96.0820 96.2120 -0.13% 6.780% +96.4290 +95.9740 Euro/Dollar EUR=EBS $1.1312 $1.1294 +0.17% -7.41% +$1.1324 +$1.1266 Dollar/Yen JPY=EBS 113.4350 113.4600 -0.02% +9.79% +113.7900 +113.2200 Euro/Yen EURJPY= 128.32 128.14 +0.14% +1.10% +128.4000 +127.8200 Dollar/Swiss CHF=EBS 0.9210 0.9237 -0.30% +4.10% +0.9252 +0.9201 Sterling/Dollar GBP=D3 $1.3257 $1.3222 +0.28% -2.95% +$1.3275 +$1.3188 Dollar/Canadian CAD=D3 1.2726 1.2714 +0.13% -0.03% +1.2739 +1.2680 Aussie/Dollar AUD=D3 $0.7168 $0.7148 +0.29% -6.81% +$0.7182 +$0.7132 Euro/Swiss EURCHF= 1.0419 1.0429 -0.10% -3.59% +1.0447 +1.0410 Euro/Sterling EURGBP= 0.8530 0.8541 -0.13% -4.55% +0.8553 +0.8527 NZ NZD=D3 $0.6794 $0.6792 +0.03% -5.40% +$0.6806 +$0.6771 Dollar/DollarDollar/Norway NOK=D3 8.9520 8.9965 -0.56% +4.18% +9.0065 +8.9460 Euro/Norway EURNOK= 10.1292 10.1513 -0.22% -3.23% +10.1757 +10.1116 Dollar/Sweden SEK= 9.0531 9.0527 +0.12% +10.45% +9.0982 +9.0316 Euro/Sweden EURSEK= 10.2413 10.2290 +0.12% +1.64% +10.2569 +10.2219 <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ World FX rates https://tmsnrt.rs/2RBWI5E^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
