Investing.com - The dollar extended losses against a currency basket on Thursday, pulling further away from four-and-a-half month highs after tame U.S. inflation data indicated that the Federal Reserve will stick to plans for a gradual pace of rate hikes.
The U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, was down 0.52% to 92.47 by 09:01 AM ET (13:01 GMT), pulling away from Wednesday’s four-and-a-half month high of 93.26.
The dollar weakened after the Labor Department reported that annual inflation rose 2.5% in April, in line with forecasts, but monthly inflation rose by a smaller-than-forecast 0.2%.
Core, or underlying inflation rose 2.1% year-on-year last month and was up 0.1% from a month earlier.
The data indicated that the Fed would stick to plans for two additional rate hikes this year, but tempered expectations for a more aggressive pace of monetary tightening.
At the same time, another report showed that U.S. weekly jobless claims held at 211,000 last week, close to an almost 48 year low, pointing to continued strength in the labor market.
The dollar has been boosted in recent sessions by rising U.S. yields and the prospect of a faster pace of rate hikes by the Federal Reserve this year.
Expectations of higher interest rates make the dollar more attractive to investors seeking yield.
The dollar reversed early gains against the yen, with USD/JPY falling 0.34% to 109.35, moving away from the three month high of 110.03 reached on May 2.
The euro pushed higher, with EUR/USD climbing 0.67% to 1.1927, rebounding from the four-month low of 1.1821 reached in the previous session.
The pound remained lower, with GBP/USD down 0.15% at 1.3527, not far from Tuesday’s four month lows of 1.3483.
Sterling came under pressure after the Bank of England left interest rates on hold earlier Thursday and said that any future rate increases are likely to be gradual and limited in their extent.
