The dollar weakened across the board after CPI data showed inflation in the U.S. rose less than forecast. February CPI rose by 0.1 percent, lower than the 0.2 increase that was forecast. Decreasing inflation decreases the likelihood that the Federal Reserve will tighten monetary policy, and increases the scope of maintaining the current low interest rates. This reduces dollar demand.
The dollar remained lower after further disappointing US economic data, showing weaker-than-expected numbers on industrial production and consumer confidence.
The ICE Dollar Index, which tracks the U.S. dollar against a basket of currencies, fell to 79.79, off 0.6% from late Thursday.
EURUSD was lifted due to a softer dollar, rising sharply to 1.3185 from pre-data levels of 1.3071. Euro finally had a break now that the focus has shifted away from the potential for an immediate disorderly Greek default, following the agreement of a new bailout.
GBPUSD surged by 130 pips to 1.5859 after the US data. Lack of domestic UK data today, dollar movements easily swayed the pound. Sterling strength may be unsustainable due to the uncertain outlook for the UK economy, with growth expected to remain sluggish. Just this week, Fitch cut the UK outlook to negative from stable, citing downside risks to the British economy and warned of the risk of losing the coveted triple-A rating.
USDJPY dipped from 83.93 to 83.17, moving off recent eleven-month highs. It remains to be seen how long the yen can hold from weakening again versus the dollar, as downside pressure on the Japanese currency is likely to persist after the surprise Bank of Japan monetary easing last month.
AUDJPY benefitted from the interest-rate differential. Japan has low interest rates, while Australia has one of the highest rates in the developed world. AUDJPY rose to 88.57, the highest level since May 3, of last year.
The Canadian dollar gained against its US counterpart after the US inflation data, which offset the disappointing Canadian data on manufacturing sales. The loonie had been underperforming all day in anticipation of the weak local data, but surprisingly pared losses and rose against the greenback. USDCAD fell to a low of 0.9899 after the US data, versus a high of 0.9939 earlier in the day.
Gold rose due to the softer dollar. The two assets usually have an inverse price relationship. Spot gold rose to $1,639.49 in New York trading from a low of $ 1,661.90.
Crude-oil prices climbed higher, with the dollar-denominated commodity finding support from a weaker USD. Crude oil rose to $107.23 in New York trading from an earlier low of $105.24.