Dollar declines as inflation data reaffirms Fed low rate policy

The dollar fell against the yen (FOREX:USDJPY) after government data showed U.S. consumer prices remained below the Federal Reserve’s 2% target, reaffirming the central bank’s pledge to keep rates record low.

The Bloomberg Dollar Spot Index fell from a four-month high touched earlier after another report showed the number of people continuing to receive jobless benefits jumped to the highest since July. The Turkish lira dropped to a record, while the Australian dollar tumbled to the weakest since 2010. The Fed has kept its key borrowing rate at a record-low zero to 0.25% since December 2008.

“You can make an argument that benign inflation could make room for the Fed to stay accommodative for longer -- the numbers might have prompted some people to take profit,” Omer Esiner, chief market analyst in Washington at the currency brokerage Commonwealth Foreign Exchange Inc., said in a phone interview. “The jobs number was positive, it shows the jobs market is gradually improving. The overall outlook of the dollar remains positive.”

The dollar dropped 0.3% to 104.30 yen at 10:27 a.m. New York time after rising 1.5% in the previous two sessions. It traded at $1.3607 per euro. The 18-nation currency dropped 0.2% to 141.90 yen.

The Bloomberg Dollar Spot Index, which measures the currency against 10 major counterparts, was little changed at 1,030.47 after advancing to 1,032.01, the highest since Sept. 9.

Turkey’s Stagflation

The Turkish lira weakened to a record after HSBC Bank AS said the nation risks stagflation as its worst political crisis in a decade hurts consumer sentiment.

The currency depreciated as much as 1% to a record 2.2124 per dollar and traded at 2.2083, the fourth day of declines.

“It is obvious that the Turkish economy is heading for stagflation fast,” Fatih Keresteci, a strategist at HSBC in Istanbul, wrote in an e-mailed note today. “The lira’s depreciation may gain pace if the central bank does not change interest rates at the MPC meeting next week.”

The rand has slipped 3.9% against the greenback this year, leading declines among 24 emerging-market currencies tracked by Bloomberg. The next biggest losses were by the Argentine peso and the lira, which have depreciated 3.8% and 2.7%.

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