The dollar held steady near a one-month low against a basket of major currencies on Friday, after tame US inflation data added to uncertainty over when the Federal Reserve will begin raising interest rates.

Data on Thursday showed a measure of US core inflation rose a mere 0.1 per cent in May, the smallest gain in five months, suggesting the Fed can stick to a very gradual policy tightening cycle, when it eventually does start hiking rates later in the year.

Dollar vs yen

Against a basket of major currencies, the dollar last traded at 94.072, having set a one-month low of 93.563 on Thursday. The dollar index is down about 1 per cent for the week, and set for its third straight weekly loss.

The yen showed limited reaction after the Bank of Japan kept the monetary policy unchanged as expected, reiterating its pledge to increase base money at an annual pace of ¥80 trillion.

The dollar inched up 0.1 per cent on the day to 123.04 yen, but was down from this week’s high of 124.465 yen.

The dollar will probably trade in a range of around 122.50 yen to 125.00 yen in the next couple of weeks, said Masashi Murata, senior currency strategist for Brown Brothers Harriman in Tokyo.

“I don’t think there will be a clear sense of direction until the US jobs data,’’ Murata said.

One risk to the scenario would be if Greece were to default on its debt and that triggers a drop in equities, in which case the dollar could come under pressure against the yen, he added.

Fed speakers

Other US data on Thursday suggested the economy was picking up steam.

The number of Americans filing for new unemployment benefits fell last week to a near 15-year low and factory activity in the mid-Atlantic region accelerated to a six-month high in June.

Ray Attrill, global co-head of FX strategy at National Australia Bank, said the US markets appeared to have settled on the view that this week’s FOMC outcome reduced the chances of more than one rate hike before year end.

“We might hope to get a bit of the flavour of this week’s meeting when we hear from San Francisco Fed President John Williams and Cleveland Fed President Loretta Mester both towards the end of the London trading day Friday,’’ he added.

The euro held steady at $1.1364. It was up about 0.9 per cent this week.

Greek crisis

The resilience of the common currency was more a reflection of dollar’s weakness rather than demand for the common currency, given Greece’s future in the euro zone was hanging in the balance.

Athens and its creditors have been deadlocked over a debt deal for weeks and if unresolved could see the cash-strapped country default on payments due at the end of the month.

Investors are still clinging to the hope that an eleventh hour deal will be struck.

Emergency summit

In what is billed as yet another ‘last ditch’ attempt to break the impasse, euro zone leaders will hold an emergency summit on Monday.

Sterling held steady at $1.5882. On Thursday it had set a seven-month high of $1.5930, partly on speculation that the Bank of England may raise interest rates before the Fed.

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