(Adds CPI data, analyst comment, FX table, byline, updates prices and dateline)
By Laura Matthews
NEW YORK, May 10 (Reuters) - The dollar fell against other major currencies on Wednesday on news
that U.S. inflation slowed more than expected, increasing the likelihood that the Federal Reserve could
pause its interest rate hikes.
U.S. Labor Department data showed April inflation cooled to 4.9%, the smallest year-over-year increase
in two years. However, so-called core inflation remained sticky at 5.5%, suggesting interest rates may need
to stay high for some time to tame it.
"The U.S. dollar did soften modestly on the news that core U.S. CPI inflation edges a little lower in
April. However, the data provides little by way of resolution for Fed hawks and doves," said Jane Foley,
head of FX strategy at Rabobank London.
"At 5.5%, core CPI inflation is well above the 2% target and does little to alter our house view that
the Fed will be unable to cut interest rates this year."
Following the data, the euro rose 0.24% to $1.0987 while sterling was up 0.14% to $1.2640.
The Japanese yen was last seen at $134.50 as the dollar slipped 0.52%.
Against a basket of currencies, the dollar index fell 0.2% to 101.38 after hitting a low of
101.21.
"There's continued angst in the market that the Fed isn't finished hiking rates," said Adam Button,
chief currency analyst at Forexlive.
"Even though the employment inflation report was only slightly lower than expected, you could see a sigh
of relief in the market. And that meant selling the dollar fairly aggressively. So ... I think the market
has been holding its breath ahead of this report."
Economists polled by Reuters expected core U.S. consumer prices to rise 5.5% on a year-on-year basis for
April.
A stronger-than-expected reading would have proved a headache for the Fed, which signalled last week it
was open to pausing its aggressive tightening cycle after delivering 10 consecutive rate hikes since March
2022.
Fed funds futures traders are pricing in a pause before expected rate cuts in September. The Fed's
target range stands at 5% to 5.25%. Button believes it is far too soon to start talking about rate cuts.
"I think the market is ready to move past the inflation narrative. But what the Fed needs to see is
rising unemployment before it even thinks about cutting rates," he said.
"I think even if inflation goes down to 2%, the Fed won't cut rates until it looks like a recession is
imminent or certain. So the growth part of the equation will be much more important from here for the market
and for the Fed."
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Currency bid prices at 10:33AM (1433 GMT)
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Previous Change
Session
Dollar index 101.4100 101.6200 -0.20% -2.010% +101.8000 +101.2100
Euro/Dollar $1.0984 $1.0961 +0.21% +2.51% +$1.1007 +$1.0940
Dollar/Yen 134.3800 135.2400 -0.63% +2.50% +135.4650 +134.2750
Euro/Yen 147.59 148.21 -0.42% +5.20% +148.6700 +147.4400
Dollar/Swiss 0.8883 0.8907 -0.26% -3.92% +0.8927 +0.8868
Sterling/Dollar $1.2631 $1.2622 +0.08% +4.45% +$1.2680 +$1.2603
Dollar/Canadian 1.3366 1.3382 -0.11% -1.34% +1.3397 +1.3335
Aussie/Dollar $0.6769 $0.6762 +0.12% -0.68% +$0.6818 +$0.6745
Euro/Swiss 0.9755 0.9760 -0.05% -1.39% +0.9774 +0.9744
Euro/Sterling 0.8694 0.8687 +0.08% -1.70% +0.8699 +0.8673
NZ $0.6359 $0.6335 +0.38% +0.15% +$0.6381 +$0.6324
Dollar/Dollar
Dollar/Norway 10.4880 10.5610 -0.48% +7.09% +10.5750 +10.4460
Euro/Norway 11.5218 11.5844 -0.54% +9.80% +11.6107 +11.4760
Dollar/Sweden 10.2075 10.2047 +0.28% -1.92% +10.2308 +10.1640
Euro/Sweden 11.2125 11.1812 +0.28% +0.56% +11.2212 +11.1705
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World FX rates Euro bulls go all-in ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Reporting by Laura Matthews; Additional reporting by Amanda Cooper in London and Rae Wee in Singapore;
Editing by Sharon Singleton, Kirsten Donovan and Richard Chang)
