LONDON/NEW YORK: The dollar dropped to a two-month low against a major currency index, after Federal Reserve officials signalled that the central bank is near the end of its tightening cycle, while sterling hit a 15-month high after pay growth exceeded expectations.
Against the yen, the dollar fell to a four-week trough of 140.17. It last traded down 0.4 percent at 140.75 yen. The U.S. currency also plunged to its lowest in two-and-a-half years versus the Swiss franc and was last at 0.8829 francs, down 0.2 percent.
Several Fed officials said on Monday the central bank would likely need to raise interest rates further to bring down inflation but the end to its current monetary policy tightening cycle was getting close.
The comments knocked the greenback to a two-month low of 101.66 against a basket of currencies, as traders pared back their expectations about how much further U.S. rates may have to rise. The dollar index was last slightly down at 101.89.
"The broad takeaway from yesterday's slate of speakers is that the Fed is essentially on auto-pilot ahead of its July meeting - and with a string of other releases set to drop between now and Jackson Hole, this has meant that the relative importance of tomorrow's consumer price report is being downplayed on currency markets," said Karl Schamotta, chief market strategist, at Corpay in Toronto.
Markets are now focusing their attention on U.S. consumer prices data due out on Wednesday, which will provide more clarity on the progress the Fed has made in its fight against stubbornly high inflation.
"Market participants should remember that U.S. data releases still have the capacity to shock: if the core or 'supercore' inflation measures surprise to the upside, front-end yields could leg higher once again, and the dollar might stage a surprising rebound," Schamotta added.