The dollar slipped against the euro today after relatively tame US inflation data for February softened expectations of how high US interest rates will rise.
Interest rate futures markets started to question whether the Federal Reserve will raise the fed funds rate, now at 4.5%, to even 5%, something they had firmly priced in until a few days ago. This weighed on the dollar and helped push the euro to a fresh six-week high above $1.2151 a short time ago.
US Government figures showed core inflation, which strips out food and energy costs as measured by the consumer price index, rise 0.1% in February, compared with expectations of a 0.2% rise. The headline rate of inflation also rose 0.1% on the month, in line with consensus.
The Federal Reserve is widely expected to raise rates later this month to 4.75% from 4.50% currently. But today's inflation data has cast doubt in traders' minds on whether the central bank will push on to 5%, and certainly appears to make anything above that even less likely.
