Euro, yen hold onto gains after less hot inflation data

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Euro, yen hold onto gains after less hot inflation data

HONG KONG The euro and Japanese yen held onto most of their overnight gains on Thursday, after U.S. inflation data came in less hot than expected and sent the dollar tumbling.

The euro's common currency was trading at $1.0285, with its 0.14 per cent loss on the day, but it came after a 0.84 per cent increase on Wednesday, its biggest daily percentage gain since mid-June.

The dollar was worth 133.15 yen, up 0.2 per cent, after a 1.6 per cent decline in July compared with June, when prices rose by a monthly 1.3 per cent. The July result was lower than expected due to a drop in the cost of petrol, which caused markets to reposition on hopes that inflation was peaking.

If the price rises to its zenith, investors expect the U.S. Federal ReserveFederal Reserve to not have to keep its eye-watering pace of interest rate hikes, which had been supporting the dollar.

Analysts at Standard Chartered said the decline in the dollar seemed to be driven by improvements in investors' attitude to riskier assets - except for the move against the yen, which they said was more of a yield play.

They wrote in a note that the surprise downward inflation move takes out much of the fear that the market had a 75 bps Fed hike or even inter-meeting moves.

Some post-CPI moves probably reflect the delayed buying of risk-correlated positions, because many investors did not want to put on positions ahead of an important number that could have gone either way. The Nasdaq's shares and short-dated treasuries rallied on the news, which pushed it more than 20 per cent above its June low and the two-year treasury yield down to 3.2141 per cent, seven basis points lower than its previous close. MKTS GLOB U.S. Treasuries were not trading in Asia due to a holiday in Japan.

According to the Fedwatch tool, markets are currently pricing in a 57.5 per cent chance of a 50 basis point interest rate rise at the Fed's next meeting, though another 75 basis point increase remains possible.

After the data showed that they would tighten monetary policy until price pressures were fully broken, policy makers of the Fed warned in public that they would continue to tighten monetary policy until price pressures were broken.

The Australian dollar, a common proxy for risk sentiment, was down 0.2 per cent after a 1.7 per cent overnight gain, and sterling was slightly softer at $1.2192, down 0.2 per cent.

The price of digital currency was up 2.6 per cent at $24,577, up from $24,577 when it traded in line with risk assets. A break above $24,676 would be a two month high for the world's largestcurrency.