The dollar held steady against peer currencies on Friday, as investors weighed higher-than-expected U.S. consumer price inflation against market bets that the Federal Reserve will cut rates as soon as March.
U.S. consumer prices increased in December as rents maintained their upward trend, edging 0.3% higher for the month and up an annual 3.4%, versus economists' forecast in a Reuters poll for a 0.2% gain and 3.2% rise, respectively.
Still, traders are pricing in a 73.2% chance for the first 25 basis point cut to come in March, with several more cuts to follow, according to the CME Group's FedWatch Tool.
"Once again, we see a disparity between market pricing, data and the Fed’s narrative," said Senior Market Analyst at City Index Matt Simpson.
"The U.S. dollar didn’t behave in such a way to suggest USD bears are running scared," he added.
The dollar index =USD was hovering around 102.26, down from Thursday's high of 102.76 but well ahead of the five-month low of 100.61 hit in December when traders began to aggressively price in a raft of Fed cuts for this year.
Cleveland Fed President Loretta Mester said on Thursday that the latest CPI figures means that it would likely be too soon for the central bank to cut its policy rate in March.
At a separate event, Richmond Fed President Thomas Barkin said that the data did little to clarify the path of inflation.
"What is important for the Federal Reserve is that the last mile in bringing inflation back to target appears to be more difficult," wrote Commerzbank analysts in a note.
"We therefore feel confirmed in our assessment that the Fed will not cut interest rates in March, as the market expects," they added.
The euro EUR=EBS stuck around $1.0977 after gaining on the dollar the previous day, while sterling GBP=D3 was last trading at $1.277, up 0.07% on the day.
The Japanese yen JPY=EBS was little changed at 145.27 per greenback but remained off Thursday's low of 146.41, its lowest since Dec. 11.
In cryptocurrencies, bitcoin BTC= was last up 0.25% at $46,270.00, having surged to a two-year high overnight after the U.S. Securities and Exchange Commission on Wednesday gave the green light to offer ETFs linked to bitcoin.
Ether ETH=BTSP eased slightly to $2,607.40 after touching its highest since May 2022 at $2690.70 on Thursday.
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