Peter Nurse

Investing.com – The U.S. dollar edged lower in early European trade Thursday, adding to the previous session’s sharp losses after the release of the latest inflation data failed to encourage any further bets on aggressive Federal Reserve policy tightening. 

At 02:55 ET (755 GMT), Dollar Index, which measures the greenback’s performance against six currencies, was 0.1% lower at 95.800. This is close to its two-month lowest.

traded 0.2% lower to 114.43, near a two-week low, climbed 0.2% higher to 1.1463, climbing to its highest level since mid-November, and rose 0.2% to 1.3729, with sterling showing strength after the Bank of England’s recent rate hike, and shrugging off Prime Minister Boris Johnson’s political travails. 

The risk-sensitive index climbed by 0.2% to 0.7300. This was almost two months after its highest point.

Wednesday’s U.S. data showed that the headline grew 7% year-on-year and the month-on-month figure rose by 0.5%. After removing volatile sectors like energy and food, December’s growth rate was 0.6% and 5.5% respectively.

Although the headline data showed that consumer prices rose at the fastest pace in almost 40 years, this was mostly as expected. It is unlikely the Fed’s policymakers will be affected by it. A few traders were less optimistic about further rate hikes, with at least three already being in the market.

That said, “it should allow consolidation for a floor below the dollar in the near term – further cementing expectations for three Fed hikes and leaving the door open to speculate for four in 2022,” said analysts at ING, in a note. “We think this is a reason for markets to keep buying the dips in the dollar for the time being.”

While there are additional U.S. Inflation numbers due to appear on Thursday’s economic data agenda, most attention will be focused on Fed Governor Lael brainard at the hearing on Capitol Hill regarding her nomination for deputy chair.

In prepared remarks before her appearance, Brainard said tackling inflation and getting it back down to 2% while sustaining an inclusive recovery is the U.S. central bank’s most pressing task.

Fed Chairman Jerome Powell had dampened overly aggressive tightening expectations in his renomination testimony on Tuesday, stating that the Fed was still debating the time frame involved in reducing the central bank’s balance sheet.