Dollar Below Twelve-Year Peak as Markets Ponder Fed's Course

The US dollar on Tuesday hovered just above the one-week low it reached overnight against its major peers as markets reduced the odds of a percentage point rate hike by the Federal Reserve this month.

Bets on large-scale easing increased last week after data showed US inflation, already at a decade high, continued to accelerate in June. But some Federal Reserve officials were quick to pour cold water on such talk, with figures released on Friday showing that consumer inflation expectations fell to a one-year low. Traders in futures contracts linked to the Fed's short-term federal funds policy rate, who were leaning toward a full percentage point increase in interest rates, changed their bets in favor of a 0.75 percentage point increase at the next meeting, with odds last seen at about 81%. The dollar index, which measures the greenback against its six counterparts, was flat at 107.47. This was down from Monday's low of 106.88 but well off last week's level of 109.29, a level not seen since September 2002. The euro, the most heavily weighted currency in the dollar index, fell 0.08% to $1.01355, but that came after a rise of about 0.6% overnight for a second day of strong gains. The common currency fell as low as $0.9952 on Thursday for the first time since December 2002, pressured by uncertainty over a potential energy supply shortage in the euro zone.