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Wall Street Journal / Biz - Money

U.S. Dollar Declines After Bigger-Than-Expected Inflation Gains

The U.S. dollar fell along with government bond prices after a report showed U.S. consumer prices rose at a faster-than-expected pace.


Daniel Kruger

The U.S. dollar fell along with government bond prices after a report showed inflation rose at a faster-than-expected pace.

The Wall Street Journal Dollar Index, which tracks the currency against a basket of 16 others, posted its largest decline in three weeks, falling 0.7% to 83.13. The dollar also fell to its lowest level against the yen since Nov. 11, 2016, as rising volatility in financial markets has led investors to buy the Japanese currency, which has served as a popular haven since the financial crisis.

The dollar closed at¥107.01 and has fallen 2% against the yen in February.

Expectations for ongoing expansion in the U.S. budget deficit, combined with growth of the trade deficit to $566 billion—the widest since 2008—pressured the dollar as bond yields rose, analysts said. That made it more difficult for some investors to stay in the currency.

The dollar initially climbed after data showed the consumer-price index rose 2.1% in the 12 months to January, matching the same annual increase as in December. Core prices were up 1.8% on the year. Economists had expected a 1.9% increase in overall inflation and core prices to rise 1.7%. The currency reversed direction later in the session.

Because some of the cost increases came from higher energy prices, some analysts said inflationary pressure could wane in coming months, given February’s decline in the price of U.S. crude oil.

While inflation pressures have been intensifying, investors said they aren’t extreme, and appear more stark after the persistent low-inflation environment that has prevailed in the U.S. since the financial crisis.

“I don’t think we’re all of a sudden in a different world,” said Ilya Gofshteyn, a macro strategist at Standard Chartered Bank. While the inflation data could bolster the currency by fostering the perception the Fed will face pressure to speed up its pace of interest-rate increases, “the U.S. deficit is looking pretty nasty and is pulling in the other direction against the dollar,” he said.

Write to Daniel Kruger at Daniel.Kruger@wsj.com