LONDON, Nov 11 – The dollar fell on Friday, extending losses from the previous day, when it posted its biggest daily slump in seven years, after U.S. inflation was lower than expected, making it less likely that the Federal Reserve continues to raise interest rates aggressively.
* Data on Thursday showed consumer inflation rose 7.7 year-on-year in October, its lowest rate since January and below forecasts of 8%.
* The dollar posted its biggest drop since late 2015 as Treasury yields plummeted, while other currencies — the yen and sterling in particular — soared.
* Investors’ risk appetite received an additional boost as Chinese health authorities eased some of the country’s strict COVID-19 restrictions, including reducing quarantine times for close contacts of cases and incoming travellers.
* The dollar index fell almost 0.5%, while risk assets such as stocks, emerging market currencies and commodities rose. However, the slowdown in inflation, while positive for borrowers, reflects a slower economic backdrop, according to analysts.
* “It can be a bit dangerous in the sense that the ‘bad news’ is still out there and could come back to burn us, particularly with regard to the Fed,” said Jane Foley, currency strategist at Rabobank.
* The dollar is up 12% this year against a basket of six major currencies, in light of the Fed’s determination to return inflation – which nearly hit double digits earlier in the year – to its 2% target. .
* Other central banks have followed suit, with the exception of the Bank of Japan, and as a result, the yen has seen its biggest decline against the dollar since 1979. The greenback, which has appreciated 22% against the yen this year – its biggest gain since 24% in 1979 – was down 0.3% against its Japanese peer at 140.60 yen.
* The pound sterling gained 0.1%, to 1.1718 dollars, after starring the day before its biggest daily gain since 2017, and the euro extended the rise of 2% from the previous day and improved 0.3%, to $1.0245, trading around its highest since August.
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