WASHINGTON (dpa-AFX) - The U.S. dollar drifted lower on Tuesday despite data showing a bigger than expected increase in the nation's producer price inflation in the month of April and prospects of the Federal Reserve keeping interest rates higher for a longer period.
The greenback recorded losses against its major counterparts, as investors digested the producer price inflation data, Fed Chair Jerome Powell's comments, and looked ahead to the consumer price inflation data, due later in the week.
Speaking at the annual general meeting of the Foreign Bankers' Association, Powell said the central bank needs to 'be patient and let restrictive policy do its work,' noting a lack of further progress on inflation during the first quarter.
The Fed chief also said his confidence inflation will slow towards the 2% target is 'not as high as it was' but reiterated he does not expect the next move to be a rate hike.
Policymakers do not expect a smooth road on inflation, as it showed no significant signs of progress in the first three months of the year, he said, and reiterated that the central bank will likely hold interest rates at their current levels for a longer period to let policy do its work.
Powell noted that the PPI reading is broadly mixed, but did not call it hot.
Data from the Labor Department said its producer price index for final demand climbed by 0.5% in April after a revised 0.1% dip in March. Economists had expected producer prices to rise by 0.3% compared to the 0.2% uptick originally reported for the previous month.
The report also said the annual rate of producer price growth accelerated to 2.2% in April from a downwardly revised 1.8% in March.
The year-over-year producer price growth was expected to inch up to 2.2% from the 2.1 percent originally reported for the previous month.
While the report initially generated renewed uncertainty about the outlook for interest rates, some economists pointed to the downward revisions to the March data as a positive sign.
The dollar index dropped to a low of 104.96 and edged up slightly to 105.02, still down nearly 0.2% from the previous close.
Against the Euro, the dollar weakened to 1.0821 from 1.0790. The dollar eased to 1.2589 against Pound Sterling, weakening from 1.2558.
Against the Japanese currency, the dollar strengthened to 156.45 yen, gaining from 156.22 yen. The dollar was down against the Aussie at 0.6624. The Swiss franc firmed to 0.9066 a dollar, while the Loonie gained marginally at 1.3652 a unit of the U.S. currency.
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