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Annual inflation in the euro zone turned negative in September,
data confirmed on Friday, maintaining pressure on the European
Central Bank to increase or extend its asset purchase program to
boost prices. That helped push the euro half a percent down on
the day to $1.1335 <EUR=>.
ECB policymaker Ewald Nowotny raised expectations for further
stimulus on Thursday, saying it was "obvious" that additional
instruments were necessary to spur price growth in the euro
zone.
Those comments were followed by upbeat U.S. inflation numbers,
which showed a surprise 0.2 percent monthly rise in the
September core consumer price index, reviving bets that the Fed
could still hike rates this year.
The dollar rose 0.3 percent against a basket of major currencies
on Friday <.DXY> to 94.644, well clear of a seven-week low of
93.806 hit the previous day.
"I don't think the inflation data was instrumental but at the
margin it pushes in that direction (of the Fed hiking in
December)," said RBC Capital Markets' head of FX strategy in
London, Adam Cole.
The euro fell half a percent to a one-week low of $1.1335 <EUR=>,
with a speech later in the day from ECB Executive Board member
Benoit Coeure set to be scrutinized for further clues on what to
expect at next week's ECB meeting.
"It's our expectation that they (the ECB) extend the duration of
the program beyond the current commitment but I don't think
that's fully priced yet," said Cole.
Commerzbank currency strategist Esther Reichelt in Frankfurt
said she did not expect the ECB to announce further measures as
soon as next week, but that the market would be watching ECB
chief Mario Draghi for signals that he would be willing to act
should disinflationary pressures persist.
Reichelt also said she still saw a December Fed rate hike as
possible.
"Whether they'll actually be able to commit to a specific pace
of rate hikes afterwards, which is the most important for the
U.S. dollar, is a different question," she said.
New Zealand's dollar was the biggest mover among major
currencies, falling 0.9 percent against a broadly stronger U.S.
dollar to $0.6785 <NZD=D4> and reversing all of the previous
day's gains.
(Editing by Catherine Evans)
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