Dollar weakens on lower inflation expectations

The US dollar fell against the euro and yen Friday as US data and comments from the Federal Reserve pointed to falling inflation expectations.

The dollar slipped to $1.0916 per euro and to 116.96 yen at about 2200 GMT.

The move came after the US retail sales data for December showed weakness in consumer spending, and wholesale prices fell a third straight month.

It raised some concern that the Fed's predictions in December when it raised interest rates, that inflation would begin picking up toward its target, were overly optimistic amid continuing falls in commodity prices, especially oil.

Oil prices dropped more than six percent on Friday, taking losses since the beginning of the year to more than 21 percent.

Investors saw the new sales and prices data as a possible sign that the Fed will have to move more slowly than planned on future rate hikes, according to Christopher Vecchio of DailyFX.

"It's hard for the Fed to say something that will change the mood... I don't know what the Fed can do to help the market," he said.

Early Friday, New York Fed President William Dudley said nothing had changed the outlook for steady moderate economic growth in the US economy in the month since the Fed's December meeting.

However, he added, "a concern is whether these persistent underruns in inflation may be beginning to weigh on inflation expectations."

"Should the economy unexpectedly weaken, then this fall in inflation expectations would become more concerning," he said.

That came a day after James Bullard, president of the Fed's St. Louis branch, warned that falling oil prices may delay a return of inflation to the central bank's target.

"Inflation expectations in the US may be falling. If so, this would put downward pressure on inflation," he said.

2200 GMT Friday Thursday

EUR/USD 1.0916 1.0865

EUR/JPY 127.68 128.27

EUR/CHF 1.0933 1.0919

EUR/GBP 0.7655 0.7538

USD/JPY 116.96 118.06

USD/CHF 1.0016 1.0051