Dollar falls as traders think inflation will be temporary

The U.S. dollar index declines on Friday. Meanwhile, major currency pairs were stuck within recent ranges as markets shrugged off Thursday’s high U.S. inflation number. Remarkably, traders believe the Federal Reserve’s stance that is likely to be a temporary blip.

U.S. consumer prices increased 5% year-on-year in May, the biggest rise in almost 13 years. Currency markets had been quiet all week in anticipation of the data.

The Federal Reserve has repeatedly announced that it expects any rise in inflation to be short-lived. Fed also reported that it is too soon to be discussing reducing its monetary stimulus.

Moreover, the U.S. dollar index declined in the Asian session and was down 0.1% on the day at 89.995. It fell about 0.2% in a week.

Additionally, benchmark 10-year U.S. Treasuries actually increased to a three-month peak in the wake of CPI, as short-sellers quit bets on rising yields.

UBS strategists also announced that they believe the Fed that elevated inflation pressures will be temporary.

Fed and ECB think policy will need tightening if inflation becomes more sustained

They also added that Federal Reserve and European Central Bank policymakers have been unusually consistent in stressing that policy will only need to be tightened if inflation becomes more sustained. Moreover, they currently view it as unlikely.

There were signs of a slightly higher risk appetite in currency markets. The risk-sensitive currencies, the Australian and New Zealand dollar, both boosted. Aussie was up 0.2% at $0.7768, and the kiwi was up 0.1% at $0.7204.

However, the British sterling was steady at $1.41695.

Remarkably, a dovish stance from the ECB at its meeting on Thursday had little effect on the euro, which was trading at $1.2181 and set for a small weekly gain of about 0.1%.

The European Central Bank announced it would continue its emergency bond-buying at a significantly higher pace, even as it raised its growth and inflation projections.

In cryptocurrencies market, the dominant cryptocurrency, Bitcoin, recovered slightly. Meanwhile, Ether was going for a 10% weekly decline. Both have stabilized so far this month. However, they are still trading significantly below their mid-May highs.