Dollar higher vs. yen, pound drops after U.K. inflation report

The dollar rose to two-month highs against the yen on Tuesday as last week’s stronger than expected U.S. jobs report continued to lend support, while the pound fell sharply after data showed that the annual rate of inflation in the U.K. slowed to the lowest level in more than a year in October.

During European morning trade, USD/JPY rose 0.61% to 99.75, re-approaching the 100 level last hit on September 11.

The dollar remained broadly stronger after last week’s strong U.S. jobs report spurred speculation that the Federal Reserve may start winding down its USD85 billion-a-month asset purchase program before the end of the year.

Sterling fell to two-month lows against the dollar, with GBP/USD down 0.75% to 1.5868 from Monday’s close of 1.5964.

The drop in the pound came after official data showed that the annual rate of inflation in the U.K. slowed to 2.2% in October, the lowest since September 2012, from 2.7% the previous month. Economists had expected the inflation rate to slow to 2.5%.

The drop in inflation was mainly due to lower prices for motor fuel, airfares, second-hand cars and university tuition.

Inflation was 0.1% higher from a month earlier in October, below expectations for a 0.3% rise.  

The core inflation rate, which excludes energy, food, alcohol and tobacco, slowed to 1.7% year-over-year, the lowest rate since September 2009, from 2.2% in September.

The euro slid against the dollar, with EUR/USD down 0.14% to 1.3386, still holding above the seven week low of 1.3294 hit on Thursday.

Data released on Tuesday showed that the annual rate of inflation in Germany, the euro zone’s largest economy, slowed to 1.2% in October, the lowest level in more than three years, from 1.4% in September.

The data added to concerns over weakening demand in the euro area, after the European Central Bank surprised investors with a rate cut last Thursday.

Elsewhere, the dollar was slightly higher against the Swiss franc, withUSD/CHF rising 0.13% to 0.9320.

The greenback was also higher against the Australian dollar, withAUD/USD falling 0.42% to 0.9320.

Australia’s dollar came under pressure after the National Australia Bank said its index of business confidence pulled back from three-and-a-half year highs in October amid concerns over the tepid outlook for domestic demand.

The greenback pushed higher against the New Zealand and Canadian dollars, with NZD/USD losing 0.42% to trade at 0.8218 and USD/CADclimbing 0.14% to 1.0489.

The U.S. dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.35% to 81.44.