The dollar lost some ground on Friday after U.S. consumer prices increased roughly in line with expectations in November as investors, who had been bracing for much higher inflation, bet that the actual number would not change the pace of interest rate hikes.
Labor Department data showed an increasing consumer price index (CPI) as cost of goods and services rose broadly amid supply constraints for the largest annual gain since 1982.
The CPI rose 0.8% last month after surging 0.9% in October while in the 12 months through November, it rose 6.8%, following a 6.2% advance in October. this compared with a 0.7% forecast from economists polled by Reuters.
"I'd characterize the CPI reading as right on expectations but the Forex market had positioned for a higher reading," said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets.
"The FX market has been extremely long US dollars for several months so with this number coming in benign we're almost out of events that could push the dollar materially higher before year-end," he said, noting that next week's FOMC meeting and Powell's speech following the meeting are likely the last dollar catalyst events this year.
"Normally FX investors scale back positions for year end ...
today's proce action where the dollar fell on neutral news is probably a prelude to that," Anderson said.
Against a basket of its rivals, the dollar went into negative territory after the news and while it regained enough ground to turn positive, it was still below its pre-CPI level. The index was last up 0.04% at 96.233.
Sterling gained some ground against the dollar after the day before paring gains to last trade down 0.09% at $1.3210.
The euro was down 0.04% at $1.1289.
Elsewhere, China's yuan fell in onshore and offshore markets after the People's Bank of China (PBOC) raised FX reserve requirements for the second time since June, and was further pressured when the central bank set its trading band midpoint weaker than expected.