Dollar marooned as investors shrug off inflation spike

After a week of anxious waiting, markets got the high US inflation number they dreaded, then shrugged it off and moved on - leaving the US dollar under pressure and most majors stuck in ranges.

Early in the Asia session the greenback nursed small losses, as traders figured there were enough one-offs in last month's 0.6 per cent rise in consumer prices to support the Federal Reserve's insistence that inflation was likely to be transitory.

The dollar bought 109.44 yen and was headed for a small weekly loss. It was also on track for modest weekly losses on the Aussie dollar and British pound, last trading at $0.7752 per Aussie and $1.41825 per pound.

A dovish commitment from the European Central Bank to stick with its elevated tempo of bond-buying held the euro in check at $1.2189.

"What we're seeing is a market that believes in the Fed," said Chris Weston, head of research at broker Pepperstone in Melbourne, as investors temper worries that the strong recovery in the United States prompts early rate hikes.

"We're going to get tapering," he said. "But it's going to get done a such a snail's pace."

The data overnight showed US consumer prices up 5 per cent year-on-year, the sharpest rise in more than a dozen years and core inflation surging 0.7 per cent in a month.

But hefty contributions from short-term rises in airline ticket prices and used cars helped convince traders it was not going to drive interest rates higher any time soon.

"It basically fit the Fed script, that we'd get a burst but it's going to be temporary," said Westpac currency analyst Imre Speizer.

"This report is consistent with that, it doesn't argue against it. I think the market needed something that argued against it to push the US dollar higher."

The US dollar index fell slightly after the inflation figures were published and last sat at 89.974, down very slightly for the week.

Benchmark 10-year US Treasuries actually rallied to a three-month high in the wake of CPI, as short-sellers quit bets on rising yields. [US/]

The 10-year yield was last at 1.4434 per cent after dipping to a three-month low of 1.4320 per cent earlier Friday. It was as high as 1.6350 per cent a week earlier.

Focus now turns to the Fed's meeting next week, although traders now say that there may not be much of a shift in rhetoric that has played down the need to taper stimulus.

A plan for reducing bond buying is expected to be announced in August or September a Reuters poll of economists found, but it isn't forecast to begin until next year.

The South Korean won firmed 0.2 per cent to 1,110.08 per dollar after the central bank governor hinted at normalising policy, in an advance copy of a speech to be delivered later on Friday.

Indonesia's rupiah gained about 0.4 per cent to 14,187 per dollar as lower US Treasury yields boosted the attraction of Indonesian bonds.

Cryptocurrencies looked to close out the week on a stronger footing, with bitcoin seemingly well supported above $35,000 despite more talk of global regulatory scrutiny.

The digital token last traded at $37,163.52 and on track for a 3.5 per cent weekly advance.