Dollar falls below 4 - month high after U.S. inflation report

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LONDON, Aug 12 - The dollar stood just below a four-month peak against major peers on Thursday as currency traders digested data from the previous day showing U.S. inflation was coming off the boil.

The dollar index, which measures a basket of six rivals against a basket of six stocks, was not changed by 92.942, after edging 0.2% lower on Wednesday following the report of easing consumer price growth.

The greenback has grown since mid-June - hitting its highest since April 1 at 93.195 prior to Wednesday's data when the U.S. Federal ReserveU.S. Federal Reserve flagged that it was gearing up for earlier than expected rate hikes and amid evidence that the release of pent-up demand in a rebounding economy was fuelling price increases.

Price increases slowed in July, but inflation remains high overall. In some areas where Fed policymakers indicated that price pressures would likely prove temporary, such as for used cars, this also eased.

That makes it more likely that inflation will ease back to the 2% target by itself and less likely that the Fed would have to hike interest rates more aggressively than so far assumed, currency analysts at Commerzbank said in a note adding producer price data Wednesday was likely to confirm the trend.

Others cautioned the dollar’s dip could be short-lived.

Further slippage imminent in coming days, but it's unlikely to develop into anything meaningful, Westpac strategists wrote in a client note.

The dollar index will continue to find support in the area of 91.5-93.50 and could see new highs beyond 93.50, when taper talk gathers momentum later this quarter, they wrote:

The euro was flat against the dollar at $1.17350 after recovering from a four-month low of $1.1706 on Wednesday.

The dollar was also unchanged against the yen at 110.440 yen after pulling back from a five-week high of 110.80 overnight.

Sterling dropped 0.1% to $1.38530 despite official data showing Britain's economy grew faster than expected in June and by 4.8% in the second quarter overall.