NEW YORK (CNBC) - The dollar fell on Friday, extending losses from the previous day, when it posted its largest one-day drop in seven years after U.S. inflation came in lower than expected, making it less likely the Federal Reserve will keep aggressively raising rates.
Data on Thursday showed consumer inflation rose 7.7% year-on-year in October, its slowest rate since January and below forecasts for 8%.
The dollar staged its biggest drop since late 2015 as Treasury yields plunged, while other currencies - the yen and the pound in particular - jumped.
Investor risk appetite got an additional boost from Chinese health authorities easing some of the country’s strict COVID-19 restrictions, including shortening quarantine times for close contacts of cases and inbound travelers.
The dollar index was down nearly 1.3%, while risk assets including stocks, emerging-market currencies and commodities rallied. But slowing inflation, while positive for borrowers, reflects a slowing economic backdrop, analysts said.
The dollar has risen by 12% this year against a basket of major currencies, in light of the Fed’s determination to bring inflation, which almost hit double digits earlier this year, back towards its target of 2%.
Other central banks have followed suit, with the exception of the Bank of Japan, and, as a result, the yen has witnessed its largest decline against the dollar since 1979.
The dollar, which has gained 22% in value against the yen this year, its steepest gain since 1979′s 24% rise, was last down 1.1% against the Japanese currency.
The yuan also jumped, as investors cheered the slight relaxing in China’s COVID rules, despite cases rising sharply across the country.
The offshore yuan rallied by as much as 1.3% to hit its highest in over a month against the dollar, to 7.0592.