Dollar, US inflation in the crosshairs

The dollar was stable on Friday, after recovering from its peers after stronger-than-expected US inflation data tempered the prospect of an aggressive Federal Reserve interest rate cut. later this month.

The main US consumer price index, excluding food and energy components, rose 0.3% in June, the largest increase since January 2018, according to data released on Thursday.

Signs of recovery in underlying inflation, as well as separate data on weekly jobless claims, showing that the labor market has remained strong, have dampened financial market expectations of a more aggressive reduction of 50 base points at the July 30-31 Fed meeting.

Market prices are still fully reduced by a quarter point reduction as US policymakers seek to support the downturn in the economy.

The dollar changed little at 108.41 yen after bouncing back from a trough of 107.860 on Thursday in response to Fed Chairman Jerome Powell's dovish comments, which had revived the odds of a 50 basis point cut.

"The dollar rebounded after the sharp rise in the US CPI which caused the market to question the Fed's view on prices and whether inflation was also weak than expected, "said Takuya Kanda, chief executive of the GaitameCom Research Institute.

"Expectations for a 50 basis point cut had risen after Powell's comments, but were again lowered by the CPI." Until the Fed meeting later this month, the prospect of a 50 basis point reduction will continue to go back and forth with each major data release. "

The dollar's index against a basket of six major currencies has only varied slightly to 97,000 after tracing the bulk of its losses on Thursday, after having briefly folded to 96,795, its lowest level in six days.

The euro was up 0.1% at $ 1.1233, after being pulled from a high of $ 1.1285 scaled Thursday ahead of the data on the US dollar. US inflation.

The Australian dollar rose 0.2% to $ 0.6987.

The US 10-year Treasury yield, which often dictates the direction of the dollar, was 2.136%, after jumping 8 basis points overnight thanks to strong US inflation data and low bid 30-year bonds.

– CNBC contributed to this report.