The dollar's advance stalled on Thursday after an overall benign U.S. inflation reading overnight spurred traders to pare back bets for a near-term Federal Reserve interest rate hike.
The greenback was little changed against the yen in Asia's afternoon, but remained on course to gain about 1% this week as markets bought back the currency pair following recent joint U.S.-Japan intervention that saw it plummet to a three-month low.
The dollar index =USD, which measures the U.S. currency against the yen and five other major peers, was flat at 99.976 on Thursday, but on course for a 0.4% weekly rise.
Yen, major currencies and regional central bank comments
The dollar changed hands at 159.35 yen JPY=, close to the 160 level that some market participants see as a line in the sand following the rare joint intervention at the end of July. The action helped pull the exchange rate down from near a four-decade peak close to 164 to 155.20 over the course of three days.
Shusuke Yamada, head of Japan FX/rates research at Bank of America, said investors can only judge the authorities' commitment to defending the yen through dollar-yen price action and the policy response that follows.
"A break above 160 would likely be interpreted as a sign of limited policy resolve, while successful intervention that pushes USD/JPY below 155 would have strengthened perceptions of strong commitment at least until recently," Yamada said.
"Confidence in Japan's commitment to defending the yen improved after coordinated intervention with the U.S. on July 31. However, as USD/JPY has rebounded without any intervention over the past week, that credibility appears to have eroded."
The euro EUR= was little changed at $1.1525. Sterling GBP= edged down 0.04% to $1.3491 ahead of a slew of UK data due later in the day, including GDP.
The Australian dollar AUD= eased 0.2% to $0.7048, but was still close to Wednesday's 10-week high of $0.7091. Reserve Bank of Australia Assistant Governor Christopher Kent told a Reuters NEXT Newsmaker event in Sydney that the risks on inflation were very much to the upside and if those risks materialised, rates would have to rise again.
The New Zealand dollar NZD= slid 0.4% to $0.5833 after a surprisingly low reading on inflation expectations stirred doubts about the need for aggressive rate hikes. The currency has retreated gradually after hitting the highest levels since early June earlier this month.
Bitcoin BTC= was slightly higher at around $63,883.
Fed rate-hike odds ease as traders weigh inflation and jobs data
U.S. consumer prices increased 0.1% in July, in line with economists' expectations, leading money markets to reduce the odds of a September rate hike to 40%, down from 54% a week ago, according to CME Group's FedWatch.
Michael Wan, a currency strategist at MUFG, said the primary dilemma for the Fed now lies in weighing inflation risks against a softening labour market, particularly after the weaker-than-expected July payrolls report released last Friday.
"We think that the FOMC is likely to maintain a restrictive holding pattern in September rather than a pivot towards a hike," Wan said in a note.
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