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Dollar On The Back Foot As Investor Risk Appetite Jumps

The US dollar (USD) lost more ground on Thursday after traders became more attracted to risk on bets of more aggressive US Federal Reserve rate hikes, following the release of better-than-expected inflation data by the Labor Department yesterday.

The dollar recovered some ground in the North American session today, as the US Dollar Index (DXY) traded at 105.00. This comes after the DXY suffered a 1% drop, its highest daily loss in five months, on Wednesday

Yesterday’s US Consumer prices remained unchanged in July, Month-on-Month (MoM), after jumping by 1.3% in June. Commenting on the latest developments, currency analysts at Commerzbank said in a note: “Yesterday’s data gave hope that inflation has peaked and the Fed will need to raise rates less sharply to keep inflation under control.”

Traders cut down on previous bets that the Fed would raise rates by 0.75% for the third consecutive time in its September policy meeting, as expectations of a 0.50% increase seem more like the case. Meanwhile, Fed officials are trying to dispel beliefs that the bank could loosen its policy anytime soon, with Neel Kashkari telling the press yesterday that the apex bank was “far, far away from declaring victory” on inflation.Strong US Dollar and milder Risk Makes AUD/USD Prone

Currency analysts at MUFG said in a note: “While yesterday’s data clearly reduces the risk of further aggressive Fed action (+75bps) and therefore helps curtail US dollar demand, we equally see it as unlikely that this data alone will prompt much further US dollar selling from here.”

Dollar Loses To Other Currencies Following Better-Than-Expected Inflation Numbers

The Japanese yen (JPY) and euro (EUR) benefited the most from the dollar’s weakness, with both currencies building on gains recorded yesterday. The British pound (GBP) traded at neutral levels against the dollar after recording a solid performance the day before.

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