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NEW YORK: The US dollar fell against the euro and yen on Tuesday after a drop in oil prices suggested U.S. inflation would stay low and prevent the Federal Reserve from hiking interest rates at a steady pace this year, while risk aversion also boosted the euro and yen.
Brent crude oil prices fell more than 5 percent on worries about the demand outlook and rising supply, boosting expectations for lower inflation and, in turn, a slower pace of Fed rate hikes. The Fed indicated in December that it expected to hike four times this year.
The dollar hit a session low against the yen of 120.190 yen after hitting a six-week high on Friday of 121.700 after the Bank of Japan's surprise shift to negative interest rates. The euro hit a session high against the greenback of $1.09400 on Tuesday.
"Weaker oil prices mean interest rates stay lower for longer," said Marc Chandler, chief global currency strategist at Brown Brothers Harriman & Co.
He said that low U.S. inflation, in addition to weakness in other U.S. economic data in areas such as manufacturing and construction spending, were leading market participants to expect the Fed may not be able to raise rates even once in 2016.