2023.03.1415:54:00UTC+00U.S. Dollar Drops As Inflation Cools

The U.S. dollar fell against its most major counterparts in the New York session on Tuesday, as the nation's consumer prices increased in line with expectations in February, supporting expectations for a smaller rate hike by the Federal Reserve this month.

Data from the labor Department showed that the consumer price index rose by 0.4 percent in February after climbing by 0.5 percent in January. The advance by the index matched expectations.

Core consumer prices, which exclude food and energy prices, increased by 0.5 percent in February after rising by 0.4 percent in the previous month. Economists had expected core prices to rise by 0.4 percent.

The report also showed the annual rate of consumer price growth slowed to 6.0 percent in February from 6.4 percent in January.

The year-over-year growth, which was in line with economist estimates, marked the smallest 12-month increase since September 2021.

The annual rate of growth by core consumer prices edged down to 5.5 percent in February from 5.6 percent in January.

Markets now see an 87.8 percent chance of a 25 basis-point hike at the Fed meeting next week, but the probability of a pause in rate hikes dropped to 12.2 percent.

U.S. stocks rose as in-line inflation data eased recent concerns about the outlook for interest rates.

The greenback declined to 0.6696 against the aussie and 0.6247 against the kiwi, from yesterday's closing values of 0.6666 and 0.6219, respectively. If the greenback slides further, it may find support around 0.68 against the aussie and 0.64 against the kiwi.

The greenback touched 1.2203 against the pound, its lowest level since February 14. The pound-greenback pair had finished yesterday's trading session at 1.2182. The greenback is seen facing support around the 1.24 level.

Data from the Office for National Statistics showed that the UK unemployment rate remained stable in the three months to January and wages grew slowly, raising the possibility of an interest rate pause from the Bank of England after ten successive rate hikes.

The unemployment rate remained unchanged at 3.7 percent in the three months to January. The rate was forecast to rise slightly to 3.8 percent.

The greenback weakened to 1.0748 against the euro and 0.9094 against the franc, from yesterday's closing quotes of 1.0731 and 0.9110, respectively. The greenback is likely to find support around 1.09 against the euro and 0.88 against the franc.

The USD/CAD pair fell to a 1-week low of 1.3660. The greenback was trading at 1.3730 per loonie at yesterday's close. Next key support for the currency is likely seen around the 1.34 level.

The greenback, however, climbed to 134.78 against the yen from Monday's close of 133.17. The greenback may challenge resistance around the 136.00 level.